ETFs are an evergreen method of gaining exposure to a basket of assets. In the United States, there are countless ETFs to choose from. You name it, and you’ll be sure to find someone who has compiled an ETF to accommodate it. Sometimes these ETFs go a bit off the deep end and generate little to no trading volume. Many ETFs do provide value though. They give meaningful exposure to a sector, industry, or even country. That last one is what we’ll touch on today.
China has seen significant downward price action in recent times. Over the past year, the Hang Seng Index (top Hong Kong stock index) has experienced a 29% reduction in value. We’ve seen companies like Alibaba, Tencent, and Baidu with downswings even larger than that.
Let’s jump into a few ETFs that will allow you to speculate on the Chinese markets. We’ll discuss some options for both the bulls and bears.
iShares MSCI China ETF (NASDAQ: MCHI)
The iShares description sums up this ETF well:
• Exposure to large and mid-sized companies in China
• Targeted access across the Chinese stock market
• Used to express a single country view
I’m a fan of this ETF because it offers strong exposure to some of the more modern consumer discretionary stocks of China. Its top holdings are Tencent Holdings LTD (13.17%), Alibaba Group Holding LTD (8.67%), and Meituan (3.61%).
Over the past year, it is down over 31%. It’s followed pretty closely to the Hong Kong HSI, but has fared a bit worse due to stronger down moves in the mid-cap holdings.
Depending on your expectations for Chinese stock performance in the remainder of 2022, this could be an ideal entry point or one to stay away from entirely.
KraneShares CICC China 5G & Semiconductor Index ETF (NYSE: KFVG)
The KraneShares ETF will give you strong exposure to technologies emerging in China – specifically 5G and semiconductor companies. These include companies listed in Mainland China, Hong Kong, and the United States.
With just over 50 holdings, the fund is well diversified. Here are the top 5:
• 7.37%: Luxshare Precision Industry Co LTD ORD
• 7.22%: Xiaomi Corp
• 6.01%: Foxconn Industrial Internet Co LTD ORD
• 5.55%: Will Semiconductor Co LTD Shanghai ORD
• 5.42%: NAURA Technology Group Co LTD ORD
The ETF is currently sitting near the bottom of its 52-week range. This is no surprise, given the performance of the broader Chinese markets. The fund hasn’t seen as sharp of a down move over the past year, since the sector as a whole continues to grow in demand.
The world relies heavily on tech manufacturing from China, and if you expect that narrative to continue, this is an ETF with clean exposure to it.
Direxion Daily FTSE China Bear 3X Shares (NYSE: YANG)
This ETF is for the China bears. And right now, there are a lot of them. YANG is a fund providing -3x leveraged exposure to the 50 largest stocks traded in Hong Kong by market capitalization. Given the Chinese market’s decline in recent weeks, you can imagine how well this ETF has performed.
The fund is up over 82% in the past month, with a 13.5% gain in just one day on March 10. It trades about 1.5 million shares a day on average, producing just under $30 million in volume. It’s seen especially high volume in recent weeks.
Analysts aren’t sure how much longer this grind up will last, but if you continue to be bearish on Hong Kong’s top companies, jump in for a -3x ride!