It may be too early to revisit China ETFs in force, but when the time is right, the WisdomTree China ex-State-Owned Enterprises Fund (NasdaqGM: CXSE) is likely to merit consideration.
A similar coronavirus outbreak of severe acute respiratory syndrome, or SARS, also upended Asian markets and economies in late 2002 after it killed 774 people.
CXSE tracks Chinese companies that are not state-controlled. State-owned enterprises are defined as government ownership of more than 20% of outstanding shares of companies, according to WisdomTree. By eliminating exposure to China’s state-run companies, the CXSE features scant exposure to banks and energy stocks.
By eliminating exposure to China’s state-run companies, the CXSE features scant exposure to banks and energy stocks. In fact, the WisdomTree China ex-State-Owned Enterprises Index has a weight to banks of just 12.60% and barely any energy exposure, according to issuer data.
“Last year, CXSE surged 36 percent while a broader gauge of Chinese equities gained just 13 percent,” according to Nasdaq. “History doesn’t always repeat, but often rhymes and if Chinese stocks rally after coronavirus concerns ebb, look at that scenario: it’s not likely to be lumbering banks, traditional telecom firms and utilities (sectors that have levels of state control in China) aren’t likely to lead the resurgence.”
The CXSE Way
Relative to traditional China ETFs, CXSE is a better mousetrap for accessing the true growth corners of China’s massive economy.
“As is the case in the U.S., sector exposure matters in China and although the world’s second-largest economy is home to a vibrant technology sector and the world’s largest internet and online retail markets, many traditional China funds don’t reflect as much,” according to Nasdaq.
Specifically, CXSE is heavily allocated to consumer discretionary and communication services stocks – two of China’s most compelling sectors.
“Currently, consumer discretionary and communication services stocks combine for nearly two-thirds of CXSE’s roster, representing significant overweights to those groups relative to standard Chinese benchmarks,” reports Nasdaq.
CXSE is not WisdomTree’s first foray into emerging markets ETFs that explicitly steer clear of state-owned enterprises. The issuer also offers the WisdomTree Emerging Markets ex-State-Owned Enterprises Fund (NYSEArca: XSOE).
For more information on Chinese markets, visit our China category.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.