U.S.-listed Chinese stocks recently suffered their biggest two-day loss since 2008 due to investors’ pessimism around Beijing’s crackdown on its tech and education sectors. Amid heightened tensions between the world’s two largest economies, China’s cyberspace regulators on July 10 introduced sweeping draft rules for cybersecurity reviews of domestic internet companies that seek overseas listings.
However, these stocks’ price tumble has made many China ADRs solid bargains considering their long-term growth prospects that are based on a thriving domestic economy. The world’s second-largest economy has a booming urban middle-class population and had the highest number of internet users in the first quarter, according to Statista. Furthermore, China’s GDP grew 7.9% in the second quarter, boosted by higher retail sales.
So, for investors that believe China ADRs will rebound soon, we think it could be wise to bet on the following Chinese-equity ETFs: iShares MSCI China ETF (MCHI), KraneShares CSI China Internet ETF (KWEB), iShares Trust - iShares China Large-Cap ETF (FXI), and DBX ETF Trust - Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR).
iShares MSCI China ETF (MCHI)
Launched by BlackRock, Inc. (BLK), MCHI invests in China’s public equity markets across diversified sectors. The fund seeks to track the performance of the MSCI China Index by using a representative sampling technique.
With $6.14 billion in assets under management, MCHI’s top holdings include Alibaba Group Holding Limited (BABA), with a 13.11% weighting, Tencent Holdings Limited (TCEHY) at 12.58%, and Meituan with 3.84%. It currently has 601 holdings in total. Over the past three months, the ETF’s fund flows came in at $197.44 million. In addition, its 0.59% expense ratio compares favorably to the 0.63% category average.
MCHI pays an $0.78 annual dividend, which yields 1.09% at the prevailing share price. Its average four-year dividend yield stands at 1.39%. The fund has gained 1.7% over the past year.
KraneShares CSI China Internet ETF (KWEB)
KWEB is the only ETF that offers pureplay exposure to Chinese software and information technology stocks. The fund invests in companies that operate across software and services, IT services, internet services and infrastructure, and application software sectors.
TCEHY has an 11.19% weighting in the fund as its top holding, followed by BABA at 10.42% and Meituan at 7.90%. With $4.43 billion in assets under management, KWEB has 52 holdings in total. Its fund flows came in at $1.30 billion over the past month. The fund’s 0.76% expense ratio compares to the category average of 0.63%.
The ETF pays a $0.22 dividend annually, yielding 0.42% at the current price. Its four-year average dividend yield stood at 1.03%. Furthermore, KWEB’s dividends have increased at a 31.8% rate per year over the past five years.
iShares Trust - iShares China Large-Cap ETF (FXI)
One of the most popular ETFs to gain exposure to the Chinese equity market, FXI seeks to track the performance of the FTSE China 50 Index. The fund focuses primarily on the finance and technology services sector, which make up more than 50% of the portfolio.
The fund has $4.35 billion in assets under management. Its top holdings include BABA with a 9.35% weighting, TCEHY at 8.12%, and Meituan with 7.71%. It currently has 52 holdings in total. Over the past three months, the ETF’s fund flows were $612.54 million. FXI’s 0.74% expense ratio compares to the 0.63% category average.
The fund pays an $0.83 annual dividend, which yields 2.01% at the prevailing share price. FXI’s average four-year dividend yield stands at 2.55%.
DBX ETF Trust - Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR)
ASHR was the first U.S.-listed ETF to offer direct exposure to the China A-share market. It seeks to track the performance of the CSI 300 Index and generally invests at least 80% of its total assets in the securities of issuers that comprise the underlying index.
With $2.44 billion in assets under management, ASHR’s top holdings include Kweichow Moutai Co., Ltd. with a 5.54% weighting, China Merchants Bank Co., Ltd. at 2.95%, and Ping An Insurance (Group) Company of China, Ltd. (PNGAY) with 2.93%. It currently has 292 holdings. Over the past three months, the ETF’s fund flows were $169.74 million. In addition, its 0.65% expense ratio compares to the 0.63% category average.
ASHR pays a $0.32 annual dividend, which yields 0.85% at the prevailing share price. Its average four-year dividend yield stands at 0.93%. Moreover, its dividends have increased at a 7.4% CAGR over the past three years. The fund has gained 16.5% over the past year and 7.6% over the past nine months.
MCHI shares were trading at $71.15 per share on Friday morning, down $0.57 (-0.79%). Year-to-date, MCHI has declined -11.94%, versus a 18.23% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.
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