After a lengthy run of disappointment, the MSCI China Index is higher by 10.21% over the past month. That’s pushed the gauge to a year-to-date gain of 8.59%. That’s almost on par with the 2024 performance of the S&P 500.
That could signal opportunity abounds with China ETFs, including the WisdomTree China ex-State-Owned Enterprises Fund (CXSE). The fund is showing strength, as highlighted by a one-month gain of almost 10%. It remains to be seen if that’s a harbinger of good things to come. But should global investors return to China stocks in earnest, CXSE could benefit.
If that scenario play out, it’s possible market participants will embrace the growth side of the China equity equation while eschewing sluggish state-controlled firms. That’s an asset class CXSE explicitly avoids.
China ETF CXSE: Right Place, Right Time?
Prior to the recent resurgence, China stocks were mired in a three-year slump that resulted in the shedding of trillions of dollars of market capitalization. That could signal there’s more upside to come. It may also indicate ETFs like CXSE are at the right place at the right time.
“The rally is impressive, especially considering Chinese markets lost around $5 trillion in three years. And we expect that there’s still more to come,” noted deVere Group CEO Nigel Green. “April’s statement issued by China’s Politburo underscores an unwavering commitment to implementing pro-growth and pro-reform policies.”
China Internet Stocks Rebounding
CXSE allocates approximately 64% of its roster to consumer cyclical, communication services and technology stocks. That indicates the fund is highly tethered to China internet stocks. And that group is rebounding and widely viewed as inexpensive relative to U.S. counterparts.
The ETF’s combined 31% weight to communication services and tech stocks also levers it to growth in China’s artificial intelligence space. That’s a relevant consideration for long-term investors because China, along with the U.S., has made some of the biggest AI strides in the world. Those efforts are central to Beijing’s efforts to reduce dependence on imports of foreign tech.
Likewise, efforts to increase domestic consumption could highlight opportunity with CXSE as consumer discretionary is the ETF’s largest sector weight, at almost 34%.
“China is transitioning from an export economy to a consumption one that ultimately, will be more sustainable. Indeed, PricewaterhouseCoopers (PwC) forecasts that the country’s burgeoning middle class could create the largest consumption market – $6 trillion – by 2030,” added deVere’s Green.
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