China Stock ETFs Soar This Week: Is the Rebound Finally Here?
This week, China stock ETFs surged as the government introduced new policies to combat economic slowdown. Investors are now wondering if the long-awaited recovery in Chinese stocks has arrived.
The iShares MSCI China ETF (MCHI) and iShares China Large-Cap ETF (FXI) gained around 17.4% this week, their best performance ever. Meanwhile, the Invesco China Technology ETF (QQQ) and KraneShares CSI China Internet ETF (KWEB) rose 18.6% and 22%, their biggest gains since 2022. The Deutsche X-trackers Harvest CSI 300 ETF (ASHR) also jumped 16%.
Stimulus Policies Drive Rally
China's central bank cut interest rates and reduced the reserve requirement ratio for banks on Tuesday to stimulate growth. It also lowered mortgage rates and down payments for second homes to support the property market. Later, the government pledged additional fiscal spending to reach its 5% annual growth target and stabilize real estate. According to Reuters, China plans to issue 2 trillion yuan in special treasury bonds to boost consumption and help local governments with debt.
Can the Recovery Last?
While ETF gains are impressive, investors wonder if these policies will lead to a lasting recovery. Phillip Wool of Rayliant Global Advisors believes the market's positive reaction reflects the government’s clear shift in tone, but future performance depends on sustained policy implementation. Despite earlier stimulus efforts, disappointing economic data has kept concerns about long-term structural issues alive.
Lagging Global Markets
Over the past year, China’s stock market has underperformed compared to the U.S. and other emerging markets. Data from FactSet shows the iShares MSCI China ETF (MCHI) dropped 2%, while the S&P 500 gained 30%, and other emerging markets (excluding China) rose 19.3%.
Fed Policy and Emerging Markets
Some actively managed emerging market ETFs have excluded China and outperformed broader ETFs. However, analysts argue that China’s recovery combined with a more dovish U.S. Federal Reserve could boost emerging markets. As the Fed cuts rates and the dollar weakens, emerging market stocks may benefit from this "perfect storm," according to Wool.
Conclusion
China stock ETFs’ strong performance this week is a direct result of government stimulus. While the short-term rally is promising, long-term success depends on sustained policy action. For investors, keeping an eye on future developments will be crucial in determining whether this is a real recovery or just a temporary bounce.
$纳指100ETF(QQQ)$ $德银沪深300指数ETF(ASHR)$ $中国大盘股ETF-iShares(FXI)$ $中国海外互联网ETF-KraneShares(KWEB)$ $MSCI Inc(MSCI)$
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