While the U.S. is tackling slowing growth, elevated inflation, and the ongoing COVID-19 pandemic, investors could be looking to overseas opportunities in China country-specific exchange traded funds.
After a lackluster year with Chinese equities dragged down by greater regulatory scrutiny, global fund managers are now taking a second look at China’s stocks and bonds, betting on Beijing’s stability pledges, low inflation, and monetary and fiscal easing, Bloomberg reports.
China’s economy is enjoying supportive measures, whereas major central banks around the world are prepping to withdraw accommodative policies and hike interest rates to fight against rising inflationary pressures. The Federal Reserve has signaled that it will begin hiking interest rates soon as well.
For non-China emerging markets, “we believe that the outlook is worsened by the Omicron variant and expectations of a stronger dollar and higher U.S. interest rates,” the Institute of International Finance (IIF) says in its latest capital flows tracker report. “Markets see China rebounding more quickly than other EMs.”
Given the disparity between the economic outlooks, David Dali, head of portfolio strategy at Matthews Asia, pointed to China as his “single favorite country” in 2022 among the roughly 30 investible emerging equity markets, highlighting factors like lower regulatory headwinds, the government’s ability to stimulate the economy, and a political goal to maintain stability.
“We believe Chinese valuations are some of the least risky and most attractive of all major markets,” Dali told Bloomberg.
Fidelity International also likes China stocks from a global perspective.
“China’s policy shift is very clear. And recent data offers signs that the economy has stabilised,” Fidelity’s fund manager Zhou Wenqun told Bloomberg.
Reflecting the positive sentiment on China, foreign net inflows into Chinese stocks through the Stock Connect scheme reached a record-high daily average of $413 million over the first three weeks of 2022, according to Morgan Stanley data.
Investors also have a number of options to access Chinese equity markets through ETFs. For example, the most popular China country-specific ETFs available include the iShares MSCI China ETF (NASDAQ: MCHI), the KraneShares CSI China Internet ETF (KWEB), the iShares China Large-Cap ETF (NYSEArca: FXI), the Xtrackers CSI 300 China A-Shares ETF (ASHR), and the SPDR S&P China ETF (NYSEArca: GXC).
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