Some funds tracking the China stock market are trading at the highest levels in nearly four years, and at least one is in a buy zone.
One of the most heavily traded China ETFs, iShares MSCI China, is up nearly 40% year to date. It's on pace for its best year since at least 2020, after struggling with declines of more than 20% in 2021-22 and an 11% drop in 2023. It climbed nearly 18% last year.
The ETF has more than 500 stocks, although it is most heavily weighted in just two: Digital conglomerate Tencent Holdings accounts for 18% of the portfolio, and online retail giant Alibaba Group represents nearly 12%.
All other holdings are no more than 5% of the fund. The ETF mainly trades China-traded shares rather than U.S.-listed ADRs.
U.S. shares of Tencent are up more than 50% year to date, and 24% from the most recent buy point at 66.74. Alibaba broke out to new highs on Sept. 11 at a 148.43 buy point. It is now extended from the buy zone.
By sector, nearly 30% of the ETF is in consumer discretionary stocks. Communications stocks make up 23.8% and financials 16.2%, with much smaller weightings for other sectors.
The $8.469 billion fund itself is up 15% from its most recent buy point at 56.18, from a flat base that broke out in July.
Other China Stock Market ETFs
The iShares China Large Cap ETF has a much more concentrated portfolio of about 50 holdings. Just like the MSCI China ETF, the large-cap fund is most heavily invested in Tencent and Alibaba, with 10% and 11% of the portfolio, respectively.
The $7.113 billion ETF is at the highest level since November 2021, up nearly 35% so far this year.
Invesco Golden Dragon varies from the other ETFs by holding U.S.-listed companies that are in the China stock market. The ETF is up about 29% year to date. It is on track for a fifth straight monthly gain after rallying about 10% this month alone.
Its largest holdings are Alibaba, Baidu, NetEase, JD.com and Yum China.
Investors looking for an actionable ETF that tracks the China stock market could consider Xtrackers Harvest CSI 300 China A-Shares. The ETF broke out of a long cup-with-handle base a week ago and remains in buy range from its 32.03 buy point. The buy zone goes to 33.63.
The $2.29 billion ETF tracks an index of the 300 largest and most liquid A-Share companies. Those are incorporated in mainland China and trade in the Shenzhen, Shanghai or Beijing stock exchanges. The Chinese government can invest in those firms, according to the fund's prospectus.
Its cousin fund, Xtrackers Harvest CSI 500 China A-Shares Small Cap, also broke out last week. Shares are in a buy zone from the 35.88 buy point that extends to 37.67, according to MarketSurge pattern recognition.
China Stock Market And Economic Risks
Despite its performance this year (the Shanghai composite is up 14%, Hang Seng up 32% per FactSet), the China stock market faces economic uncertainties.
U.S. tariffs remain a risk. However, Treasury Secretary Scott Bessent told CNBC this week that a deal is likely to be ready before a November deadline.
Many economists say Beijing can again tap stimulus tools to revive the economy. Economists' consensus view is that the People's Bank of China will cut interest rates by 10 basis points in the final quarter of the year, Bloomberg reported. Morgan Stanley expects a package of up to $140 billion to fund infrastructure spending and spur consumption.
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But some obstacles prevent China from stimulating the economy as easily as in the past, Yardeni Research said in a note Tuesday. The country's economic slowdown is broad, seen in job growth, retail sales, the property market and other gauges. U.S. tariffs are hitting the economy too, the firm noted.
"These headwinds challenge investors' faith that traditional stimulus bursts will be effective this time — and they undermine the fabled 'Xi Put' that's worked so well for a decade now," wrote Yardeni's William Pesek. "But faith in the Xi Put dies hard: Investors remember past government interventions to buoy the stock market, which may be helping to fuel their exuberance."
