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In recent years, investing in Chinese stocks has proven extremely challenging for bullish investors. Government policies perceived as anti-growth, crackdown on several sectors, strict COVID-19 measures, and a crisis in the real estate sector have contributed to a market lull.
iShares MSCI China ETF (MCHI - Free Report) and iShares China Large-Cap ETF (FXI - Free Report) have fallen by 21.2% and 34% over the past five years. The struggling real estate sector has posed the main challenge to China's economy. Evergrande, previously the top real estate company globally, fell apart during the crisis in the Chinese property market.
Raised GDP Growth Forecast
China's economy is set to grow 5% this year, after a "strong" first quarter, the International Monetary Fund said lately, upgrading its earlier forecast of 4.6% expansion though it expects slower growth in the years ahead.
BNP Paribas also recently expected China to hit its 5% growth target, while Goldman Sachs last month raised its forecast for 2024 to 5% from 4.8% in November. Citi also raised its own forecast to 5% from 4.6% in March. All of them pointed to the strong first quarter data, as quoted on Reuters.
China's exports for May surpassed analyst expectations despite trade tensions, though imports shrank. Exports soared 7.6% year over year in May, rising at the fastest pace since April 2023, mainly due to easy comps and a weaker real effective exchange rate.
Easy Money Policy
In its last meeting, China's central bank left a key policy interest rate unchanged and continued to drain cash form its banking system in order to shore up the ailing economy. In February, China's central bank announced that it cut its 5-year loan prime rate while leaving its 1-year rate unchanged.
Cheaper Valuation
The ETFs like FXI,Franklin FTSE China ETF (FLCH - Free Report) and MCHI trade at a P/E 16.63X, 18.98X and 19.01X, respectively, much lower than the SPDR S&P 500 ETF Trust (SPY - Free Report) ’s P/E of 31.99X.
Corporate Fund-Raising Activities Going On
Chinese companies are leveraging a resurgence in the equity markets to secure funding. The use of convertible bonds has escalated, offering an advantageous route for companies to raise funds without immediate stock dilution.
Chinese tech leaders like Alibaba (BABA - Free Report) , Tencent Holdings (TCEHY - Free Report) , and JD.com (JD) have each announced billions in buybacks over the past few months. Buybacks are a bullish catalyst for these stocks because they drive investor confidence.
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Time for China ETFs?
In recent years, investing in Chinese stocks has proven extremely challenging for bullish investors. Government policies perceived as anti-growth, crackdown on several sectors, strict COVID-19 measures, and a crisis in the real estate sector have contributed to a market lull.
iShares MSCI China ETF (MCHI - Free Report) and iShares China Large-Cap ETF (FXI - Free Report) have fallen by 21.2% and 34% over the past five years. The struggling real estate sector has posed the main challenge to China's economy. Evergrande, previously the top real estate company globally, fell apart during the crisis in the Chinese property market.
Raised GDP Growth Forecast
China's economy is set to grow 5% this year, after a "strong" first quarter, the International Monetary Fund said lately, upgrading its earlier forecast of 4.6% expansion though it expects slower growth in the years ahead.
BNP Paribas also recently expected China to hit its 5% growth target, while Goldman Sachs last month raised its forecast for 2024 to 5% from 4.8% in November. Citi also raised its own forecast to 5% from 4.6% in March. All of them pointed to the strong first quarter data, as quoted on Reuters.
China's exports for May surpassed analyst expectations despite trade tensions, though imports shrank. Exports soared 7.6% year over year in May, rising at the fastest pace since April 2023, mainly due to easy comps and a weaker real effective exchange rate.
Easy Money Policy
In its last meeting, China's central bank left a key policy interest rate unchanged and continued to drain cash form its banking system in order to shore up the ailing economy. In February, China's central bank announced that it cut its 5-year loan prime rate while leaving its 1-year rate unchanged.
Cheaper Valuation
The ETFs like FXI,Franklin FTSE China ETF (FLCH - Free Report) and MCHI trade at a P/E 16.63X, 18.98X and 19.01X, respectively, much lower than the SPDR S&P 500 ETF Trust (SPY - Free Report) ’s P/E of 31.99X.
Corporate Fund-Raising Activities Going On
Chinese companies are leveraging a resurgence in the equity markets to secure funding. The use of convertible bonds has escalated, offering an advantageous route for companies to raise funds without immediate stock dilution.
Chinese tech leaders like Alibaba (BABA - Free Report) , Tencent Holdings (TCEHY - Free Report) , and JD.com (JD) have each announced billions in buybacks over the past few months. Buybacks are a bullish catalyst for these stocks because they drive investor confidence.