Analyst: Approach China With Caution, Watch For "Value Traps"

Like the majority of emerging markets, China hasn’t been immune to the pangs of the market volatility within the last couple of months due to the U.S.-China trade war. While some investors may look at these equities as a possible value-oriented option, one analyst says to watch out for potential value traps.

“You’d have better luck at the craps table because trying to pick a bottom in these stocks is exactly that, it’s gambling,” said Quint Tatro, president of Joule Financial, Tuesday on CNBC’s “Trading Nation.” “These are going to be high beta names tied exactly to the trade discussions and the worsening economy that’s going on in China right now as a result of that.”

“It’s a value trap at this juncture and again going out and trying to pick a bottom in these names is very dangerous,” Tatro added. “Someone can wait until news breaks and we really have some [trade]resolution and then wait to see these earnings really turn around.”

China announced plans to impose additional duties on $75 billion worth of American goods on Sept. 1 and Dec. 15. In response to these latest measures, President Donald Trump tweeted that his administration would also raise tariffs on $550 billion of Chinese imports.

With all the trade talk news inundating the media, it’s easy for investors to get caught up in the hype of investing in China as a value play. The last thing an investor should do is dive deep into China blindly even if China is becoming less resistant to safeguarding its businesses, which will open the pathways to more foreign investment even as trade wars continue.

ETF investors can look to the VanEck Vectors ChinaAMC CSI 300 ETF (NYSEArca: PEK) and VanEck Vectors ChinaAMC SME-ChiNext ETF (NYSEArca: CNXT) to gain direct access to Chinese mainland markets.

While PEK provides investors with large-cap exposure to Chinese markets, investors can opt for CNXT to gain small-cap exposure. CNXT seeks to mimic the performance of the SME-ChiNext 100 Index (CNI6109), which tracks the performance of the 100 largest and most liquid China A-share stocks listed and traded on the Small and Medium Enterprise Board and the ChiNext Board of the Shenzhen Stock Exchange.

Additionally, investors should give the VanEck Vectors China AMC China Bond ETF (NYSEArca: CBON) a look. CBON seeks to replicate the price and yield performance of the ChinaBond China High-Quality Bond Index, which is comprised of fixed-rate, Renminbi-denominated bonds issued in China by Chinese credit, governmental and quasi-governmental issuers.

For more market trends, visit ETF Trends.