To The Moon

The iShares China Large-Cap ETF (FXI) has recently become the world's first Chinese stock ETF to surpass $10 billion in net assets. This milestone reflects global investors' confidence in the Chinese market and highlights the international appeal of major Chinese enterprises. In the context of current economic turbulence and geopolitical uncertainty, FXI’s growth story stands out. This year, FXI has performed exceptionally well, rising over 39%, significantly outpacing the S&P 500's 23%.

What is FXI?

FXI is an exchange-traded fund managed by Invesco that tracks Chinese large-cap stocks. Established in 2004, it primarily invests in Hong Kong-listed Chinese blue-chip companies, with core holdings including Meituan, Alibaba, and Tencent. These tech giants hold substantial market shares globally and are vital components of the Chinese economy. FXI aims to replicate the performance of the FTSE China 25 Index, which includes leading companies across various sectors, such as technology, finance, and consumer goods.

Currently, FXI boasts a management scale exceeding $10 billion, making it the first Chinese stock ETF to reach this significant milestone.

Key Information

• ETF Name: iShares China Large-Cap ETF (FXI)

• Issuer: BlackRock iShares

• Inception Date: October 2004

• Tracked Index: FTSE China 50 Index

• Assets Under Management: Over $10 billion (as of 2024)

• Expense Ratio: 0.74%

• Dividend Yield: 2.9%

• Liquidity: FXI is highly liquid, with a stable trading volume, typically exceeding 10 million shares per day, making it a leading choice among Chinese stock ETFs.

Investment Objective

FXI seeks to track the FTSE China 50 Index, which comprises the 50 largest and most liquid Chinese companies listed in Hong Kong. By investing in these firms, FXI provides global investors with direct access to China's blue-chip stocks, predominantly in sectors such as technology, finance, consumer goods, and telecommunications.

Core Holdings

FXI’s portfolio represents critical sectors of the Chinese economy, particularly technology and internet giants. Here are the major holdings in FXI:

• Meituan: The largest food delivery and local services platform in China.

• Alibaba: A global leader in e-commerce and cloud computing.

• Tencent: One of the world’s largest social media and online gaming companies, the parent of WeChat.

• JD.com: A leading e-commerce platform in China, especially known for its robust logistics capabilities.

Additionally, FXI holds shares in other major Chinese firms, such as China Construction Bank and China Mobile.

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Sector Allocation

FXI's investment portfolio spans multiple industries, with a focus on technology, finance, and consumer sectors:

• Technology: Approximately 38% of total holdings, including Meituan, Alibaba, and Tencent.

• Finance: Comprising major Chinese banks and insurance firms, such as China Construction Bank and Bank of China, accounting for around 20%.

• Consumer and Telecommunications: Represented by JD.com and China Mobile.

This diversified sector allocation enables FXI to balance the risks of growth-oriented companies (like tech stocks) with defensive sectors (such as finance), offering investors a more stable risk-reward profile.

Performance Overview

• Year-to-Date Performance (2024): FXI has excelled this year, rising over 39%, significantly surpassing the S&P 500's 23% gain, primarily driven by the rebound in Chinese tech stocks and policy stimulus.

• Long-Term Performance: FXI’s long-term performance has been volatile, heavily influenced by macroeconomic factors in both global and Chinese markets. Despite facing slowdowns in the Chinese economy, FXI has demonstrated strong resilience.

Investment Advantages

• Easy Access to Chinese Markets: FXI offers international investors a straightforward and liquid avenue to directly invest in major Chinese companies.

• Diverse Holdings: With investments across various sectors, FXI captures high growth potential in the tech industry while balancing market volatility risks through finance and consumer sectors.

• Long-Term Growth Potential: Continuous economic support from the Chinese government, especially in technology and innovation, will aid in the sustained growth of FXI's core holdings.

• Dividend Income: Although FXI focuses on growth stocks, it also provides an attractive dividend yield of around 2.9%.

Investment Risks

Despite FXI's strong growth potential, investors should be aware of the following risks:

• Macroeconomic Risks: Slowing growth in the Chinese economy, real estate market challenges, and global economic uncertainty may impact FXI's performance.

• Geopolitical Risks: Trade tensions between China and the U.S., along with other geopolitical factors, could negatively affect Hong Kong-listed Chinese companies, thereby influencing FXI's performance.

• Currency Risks: As FXI’s holdings are primarily listed on the Hong Kong Stock Exchange, investors need to navigate fluctuations between the Hong Kong dollar and the U.S. dollar.

Who Should Invest?

FXI is particularly suitable for international investors looking to gain exposure to the Chinese market through blue-chip stocks. It provides diversified investment opportunities in some of the most representative large enterprises in the Chinese economy, especially for those optimistic about the tech and finance sectors. If you believe in the long-term prospects of the Chinese economy and are willing to accept some market volatility, FXI is worth considering.

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