Introduction:
How to find good investment opportunities in this wave of Chinese asset recovery?
Many people's first choice is to choose a good stock. Obviously, although high-quality individual stocks may bring excess returns and can be invested in specific industries or themes, this is very difficult for most investors and is not conducive to Risk Diversification.
Is there a more secure way? For most investors, ETFs are a more suitable choice.
If you want to bottom fish Chinese assets but don't have a particularly familiar target, you can consider Chinese asset ETFs. ETFs are becoming a common choice for many novice traders and experienced traders due to their close tracking of indices, risk diversification, and low costs.
This article will sort out all the important Chinese asset ETFs in the US and Hong Kong stock markets, providing comprehensive guidance for investors.
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1. Why continue to be optimistic about China's asset recovery?
China is the world's second largest economy, and its economic growth rate still leads most countries in the world. According to the IMF's World Economic Outlook released in July 2024, China's GDP growth rate in 2024 is expected to be 5.0%, higher than the 1.7% of developed economies and 4.3% of Emerging Markets.
Although the stock prices of Chinese companies have suffered consecutive setbacks after 2021, they are expected to bottom out in the second half of 2024. For example, in the first eight months of 2024, giant internet companies such as Tencent, Alibaba, Meituan, etc. began to steadily rise.
At present, there are several factors that may make Chinese assets increasingly bottom fishing:
The valuation is low enough: as of the end of July 2024, the Price-To-Earnings Ratio of the MSCI China Index was only 11.6 times, which is at a historical low. The Federal Reserve cuts interest rates: As the Federal Reserve lowers interest rates, international capital will increase its risk appetite and may flow to emerging markets such as China. RMB appreciation: The strong US dollar may end with the opening of interest rate cuts, and the RMB has re-entered the appreciation range since July, which is good for Chinese assets.
2. Comprehensive understanding of Chinese asset ETFs in Hong Kong and US stocks
RockFlow's research team has found that there are currently dozens of high-quality ETFs for Hong Kong and US stocks, which can help everyone participate in the recovery of Chinese concept stocks and achieve returns that are not weaker than the market average.
2.1 Suitable for Hong Kong stock investors:
The advantage of Hong Kong stocks compared to A-shares is that the marginal effect of being affected by the Fed's interest rate cuts is greater. Coupled with a large number of high-quality internet companies and continuous repurchase policies, it will have a better effect on supporting the Hong Kong stock market. This is also part of the reason why Hong Kong stocks have performed better than Class A Shares this year.
If you are a long-term investor who believes in Value Investment and hopes to allocate assets to high-quality companies in Hong Kong stocks for the long term, you can consider investing in index ETFs represented by 02800.HK. This ETF was listed in 1999 and has a long history, large asset scale, and good liquidity. In addition, there are also Hang Seng Technology ETFs (03032.HK) and Southern Hang Seng Technology (03033.HK) to choose from.
If you are a band-type trend investor and want to try active timing, it is more suitable to choose leveraged and reverse ETFs. The Hong Kong stock market 2x long/short ETFs include: Southern 2x long Hang Seng Index (07200.HK), Southern 2x short Hang Seng Index (07500.HK), Southern 2x long Hengke (07226.HK), Southern 2x short Hengke (07552.HK), which will bring you excellent performance twice that of the corresponding index.
2.2 Suitable for US stock investors:
For investors in the US stock market, the choice of ETFs is more diversified. They can choose ETFs that track China Concepts Stock (including in the US and Hong Kong) related indices, or choose ETFs related to important Class A Share indices.
The following chart covers all the important ETFs tracking the performance of the Chinese stock market in the current US stock market. We will briefly explain each one.
FXI is the first Chinese stock ETF listed in the US with a scale exceeding 10 billion US dollars. Its investment scope is Chinese large-cap stocks listed in Hong Kong. In addition to the Internet, it also allocates to companies in industries such as finance and energy. Most of its holdings are state-owned enterprises or giants in their respective industries, which are closely related to the overall situation of the Chinese economy. FXI is suitable for investors who want to invest in China but prefer stable large companies.
KWEB specializes in investing in Chinese internet companies, with about 30 holdings. If you want to put China's largest internet companies, such as Tencent, Pinduoduo, Alibaba, Meituan, and other giants, into one basket, this basket is KWEB. KWEB is suitable for investors who are optimistic about the future of China's internet and do not want to only buy stocks of one or two companies.
MCHI tracks the MSCI China Index and can comprehensively reflect the performance of China Concepts Stock. Except for the heavy holdings in Tencent and Alibaba, the other holdings are relatively evenly distributed in terms of proportion and industry distribution. It not only includes internet companies, but also leading enterprises in industries such as banking, real estate, and automobile manufacturers. MCHI is suitable for investors who want to fully participate in China's economic growth.
CQQQ's investment theme is Chinese technology stocks. In addition to internet companies, it also holds many technology companies such as electronics, semiconductors, and artificial intelligence. CQQQ is suitable for investors who are optimistic about China's technology industry and hope to enjoy the returns brought by China's rapid technological development.
In addition to investing in US and Hong Kong stock companies, some ETFs also allow you to easily invest in A-shares.
ASHR is the largest CSI 300 China Class A Share ETF, which tracks the CSI 300 Index. The index is composed of leading companies in China's finance, consumption, industry, technology, materials and other industries, covering the largest and most liquid 300 stocks on the Shanghai and Shenzhen stock exchanges. The main constituent stocks are Guizhou Maotai and CATL. ASHR is suitable for investors who are optimistic about leading companies in various industries in China.
CNXT, a CSI small-cap long ETF, mainly invests in companies listed on the Growth Enterprises Market of the Shenzhen Stock Exchange. Growth Enterprises Market companies are usually emerging and innovative small and medium-sized enterprises. CNXT is suitable for investors who are optimistic about China's innovation capabilities and emerging industries.
With GXC, you can invest in various types of Chinese companies (state-owned enterprises, private enterprises, etc.) at once. GXC is suitable for investors who want to fully invest in the Chinese stock market while also hoping for relatively diversified risks.
In addition to the above ETFs suitable for regular investment, investors can also use leveraged ETFs for swing trading.
CHAU, a 2x long Shanghai and Shenzhen 300 Index ETF, aims to double the daily fluctuations of China's Class A Share market. If the Chinese Class A Share market rises by 1%, CHAU will rise by 2%. If the Class A Share market falls by 1%, CHAU will also fall by 2%. CHAU is suitable for investors who are very optimistic about the prospects of China's Class A Share market and willing to take risks.
CWEB is an "enlarged version" of KWEB introduced earlier. It focuses on Chinese internet companies, but aims to double the daily fluctuations. CWEB is suitable for investors who are very optimistic about the Chinese internet industry and willing to take risks.
YINN is also a leveraged ETF. Its goal is to triple the daily rise and fall of the Chinese stock market. If the Chinese stock market rises by 1%, YINN will try to rise by 3%. YINN is suitable for short-term investors who strongly believe in the trend of the Chinese stock market and are willing to take risks.
Of course, if you think that Chinese asset prices may decline in the short term, you can also get good returns by shorting China ETFs.
YANG's goal is to triple the daily volatility of the Chinese stock market. If the Chinese stock market falls by 1%, YANG will try to rise by 3%. Conversely, if the Chinese stock market rises by 1%, YANG will fall by 3%. YANG is suitable for professional investors who are strongly bearish on the Chinese market and willing to take risks.
Conclusion
If you want to bottom fish China but don't have a particularly familiar target, you can consider China Asset ETFs. Currently, there are dozens of large-scale and liquid ETFs in the US and Hong Kong stock markets that can help everyone participate in the recovery of Chinese concept stocks and achieve returns that are not weaker than the market average.
Regular investment in FXI, KWEB, and MCHI are all good choices. In addition, leveraged ETFs such as CWEB, YINN, and YANG are also very suitable for professional investors who are strongly optimistic or pessimistic about the market.
Author Profile:
The RockFlow research team has a long-term focus on high-quality companies in the US stock market, emerging markets such as Latin America and Southeast Asia, and high potential industries such as encryption and biotechnology. The core members of the team come from top technology companies and financial institutions such as Facebook, Baidu, ByteDance, Huawei, Goldman Sachs, CITIC Securities, etc. Most of them graduated from top universities such as Massachusetts Institute of Technology, University of California, Berkeley, Nanyang Technological Institute, Tsinghua University, and Fudan University.
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