These 10 China-focused ETFs are up this year — and one is expected to rise by another 40%
Chinese stock markets have failed to perform in 2023. Take, for instance, the Shenzhen Component , Shanghai Composite , or the more accessible Hang Seng Index . All three major indexes have lost money for investors over the past week, month, three months, six months, and year. Only patient investors who entered the market four or five years ago would be in the black. Investor optimism toward the world’s second-largest economy has waned after Beijing’s stimulus policy failed to ignite economic growth. A slowdown in GDP growth and an alarming drop in import and export figures also means that China’s yuan hit its lowest level against the U.S. dollar since December 2007. A dollar now yields 7.33 yuan, compared to 6.89 Yuan at the start of the year. As a result, shorting the Chinese currency has been one of the most profitable investments this year, according to analysis by CNBC Pro of FactSet’s ETF performance data. “Shorting” allows investors to profit when the value of a stock, bond, or currency declines. CNBC Pro screened for global China-focused ETFs that have posted positive returns this year to date. You can see the 10 results in the table below. All of the funds are readily accessible to Western investors via exchanges in New York, London, Amsterdam, Frankfurt, and Singapore. Currency The WisdomTree Short CNY Long USD ETF , traded on the London Stock Exchange and Germany’s Xetra, is up the most at 9.6% this year. The fund takes a short position against the Chinese renminbi through a forward exchange contract – like futures. For example, if the yuan falls by 1% relative to the U.S. dollar over a day, then the ETF will rise by 1%, excluding fees. Strategists at the investment banking arm of Macquarie expect the currency to weaken further against the dollar in the third quarter before strengthening moderately in the fourth quarter. “More USD buying and a looser policy of FX management by the PBoC [People’s Bank of China] leads us to revise upward our projections for USD/CNY to 7.35 (Q3) and 7.30 (Q4), from 7.10 and 7.20 previously,” said FX strategists led by Thierry Wizman at Macquarie in a note to clients on Aug. 15. “Still, we do not believe that the PBoC will abandon its mandate to stabilize the yuan completely.” CNY= 5Y line Stocks In equities, the Global X MSCI China Energy ETF , traded on the New York Stock Exchange, has risen 8.9% this year. The fund provides relatively diversified exposure to the concentrated Chinese energy sector, which includes companies operating in the oil, gas, coal and nuclear sub-sectors. A weighted average analysts’ price target for companies in the ETF points toward a further 22.4% upside over the next 12 months, according to FactSet data. Goldman Sachs commodities analysts expect Brent crude oil prices to rally a bit further to $93 a barrel from its current price of $90, which could support oil and gas stocks in the ETF. “We still see a potentially more aggressive OPEC+ price target as the key moderately bullish risk to our 12-month ahead Brent forecast of $93/bbl,” the Goldman analysts said in a note to clients on Sept. 4. CHIE 5Y line Meanwhile, the Invesco Golden Dragon China ETF is up 1.8% this year and has the biggest upside potential at 39.2%, according to the weighted average of analysts’ price targets. The ETF exclusively holds Chinese shares listed in the U.S. These are commonly known as “N-shares”, or ADRs of Chinese companies based in mainland China that only trade in the U.S. The fund aims to take advantage of the opportunities in China with the transparency that U.S.-listed securities tend to offer. PGJ 5Y mountain Other equities ETFs listed in the U.S. that have risen this year include Global X MSCI China Communication Services ETF and KraneShares CICC China Leaders 100 Index ETF .
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