Headline news of a trade war between the U.S. and China have triggered a negative bias for Chinese equities and country-specific ETFs, causing investors to focus on short-term noise over long-term fundamentals.
“Some proportion of the public, including many on Wall Street, are letting their political views with respect to President Trump get in the way of arithmetic,” Jeff Weniger, Asset Allocation Strategist for WisdomTree, said in a note. “That can create opportunity for the sober observer.”
Specifically, Weniger warned that some investors are mistakenly prognosticating “global trade war” doom.
Global trade has only grown more tight-knit in the past few years. For example, China and Japan have improved relations. Japan and Europe have also grown closer. Arguably, there was nothing but improvement in relations between the U.S. and both Mexico and Canada, at least compared to the past summer.
“Some global trade war this is, with major foreign leaders jumping over each other to prove their free market bona fides,” Weniger said.
Instead of talks of a trade war, investors should be focusing on the economic stimulus, which has been a more tangible factor in improving the Chinese economy. For example, there is a $435 tax cut for the average white-collar Chinese worker, earning $13,608 a year, along with more mortgage, student loan and child deductions.
During this spring, Beijing issued a 1% cut in value-added tax (VAT) rates. Combined with income tax relief, the Chinese government has enacted $103.8 billion in cuts this fiscal year alone.
Consequently, contrarian investors who are interested in taking on a potential rebound story could look to China-related ETFs. For example, the WisdomTree ICBCCS S&P China 500 Fund (NYSEArca: WCHN), tries to reflect the performance of the S&P China 500 Index, a group of 500 of the largest, most liquid Chinese companies by market capitalization and one of the only broad-based indices with exposure to all Chinese equity share classes, listed both in mainland China and internationally.
Additionally, WisdomTree China Ex State Owned Enterprises Fund (NasdaqGM: CXSE) tracks companies that are not state-owned enterprises, which means that it does not hold some of the large Chinese banks that make up a sizeable portion of the overall Chinese market capitalization. The ETF tilts toward tech and consumer discretionary to capture the quickly rising e-commerce or online retail segment as a way to capitalize on the country’s growing middle-income demographic and ongoing economic shift toward domestic consumption.
For more information on the Chinese markets, visit our China category.