It’s been a long, bumpy road for investors holding Chinese stocks and the related exchange traded funds, but rays of hope are emerging in the world’s second-largest economy.
With Beijing focusing more on reviving the Chinese economy amid fears of a global slowdown and less on a regulatory regime that punished Chinese equities last year, ETFs such as the VanEck Vectors China Growth Leaders ETF (GLCN) could come back into style.
GCLN, which tracks the MarketGrader China All-Cap Growth Leaders Index, could be one of the ideal ways for investors in the U.S. to play a resurgence in Chinese stocks, particularly if Beijing rethinks its strong coronavirus policy.
“Each of the thunder clouds that formed a perfect storm over China early this year has brightened, if not dissipated. Shanghai’s two-month Covid 19 lockdown ended May 31. A “dynamic Covid” policy shift promises less draconian measures going forward. Policymakers have returned to economic stimulus mode, raising rebound hopes for the cratering, all-important property sector,” reported Craig Mellow for Barron’s.
If Chinese stocks, which are rallying off the May lows, are credibly on the path to redemption, GCLN is meaningful in the conversation due its methodology. The MarketGrader China All-Cap Growth Leaders Index focuses on fundamentally sturdy Chinese companies trading at attractive multiples.
While fundamentals aren’t a guarantee of resilience when stocks swoon, history indicates that when Chinese markets falter, it’s often the country’s most dubious publicly traded firms leading that downside. Home to 200 stocks, GCLN shows that it’s possible to construct a broad basket of sound Chinese companies.
“Beijing’s war on big tech, and whether it’s winding down, is the most nebulous of China’s market indicators. Investors have taken heart from the rising profile of premier Li Keqiang and his deputy Liu He, seen as leaders of the government’s pro-business wing,” according to Barron’s.
Beijing relenting in its regulatory punishment of Chinese tech and consumer companies is relevant to investors considering GCLN because the VanEck ETF allocates 16.6% of its weigh to tech stocks. The communication services and consumer discretionary sectors combine for 21.3% of the fund’s roster. Those sector exposures also lever GCLN to the COVID-19 reopening theme.
“One thing doesn’t change in China whether the market is hot or not: Success depends on reading a government that is, to say the least, reluctant to be read. Signs point to less disruption and more free lunches from now till October, when a Communist Party congress convenes, presumably to grant Xi a precedent-breaking third term in power,” added Barron’s.
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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.