China is enjoying a string of positive macro developments, which is fueling investor appetite in its equity markets.
The rally followed Beijing’s move to introduce new consumer-loan subsidies to boost local demand and President Trump’s executive order, which prevented U.S. tariffs on Chinese goods from spiking for another 90 days.
As a result, iShares China Large Cap ETF (NYSE:FXI), the KraneShares CSI China Internet ETF (NYSE:KWEB), and the iShares MSCI China ETF (NASDAQ:MCHI) are garnering renewed investor interest.
Global Liquidity Tailwinds From U.S. Rate Moves
The 30-year U.S. mortgage rate fell to its lowest level in around 10 months. Whether this leads to a more dovish Federal Reserve policy remains to be seen.
For emerging-market and thematic funds such as FXI, KWEB, and MCHI, lower U.S. interest rates tend to translate into stronger capital inflows into higher-growth areas, driving valuations for internet, consumer, and tech-heavy positions higher.
China’s Weakest Month Of 2025 Spurs Policy Response
China’s July data revealed:
- Industrial production 5.7% higher, weakest in eight months
- Retail sales 3.7% higher, weakest since Dec 2024
- Lending contracted for the first time in decades
This sort of weakness revived hopes for Beijing to introduce further economic stimulus, closely monitored by China-ETF investors looking for signs of a recovery. This is a direct positive for Alibaba Group Holding‘s (NYSE:BABA) core marketplaces and digital services, which benefit from increased spending power among households.
Beijing Sets Sights On Service-Sector Consumption
To stimulate demand, policymakers introduced an annual interest subsidy of one percentage point on eligible household and enterprise loans for eight service-sector industries. The policy has the following objectives:
- Reduce borrowing costs without undermining bank profitability
- Boost service-sector and consumer spending
- Increase employment
These specific interventions may benefit ETFs such as KWEB, which owns China’s top internet and e-commerce platforms, including Alibaba, that are likely to benefit from increased consumer consumption.
Trade Truce Buys Time For Markets
This week, Trump extended a trade truce with China until Nov. 10. This prevents a sudden tariff increase that could have put downward pressure on global supply chains and export-oriented sectors.
For large-cap ETFs such as FXI and MCHI, the move removes a near-term overhang for and stabilizes the prospects for large-cap Chinese stocks and global supply chains, both of which influence Alibaba's cross-border commerce.
Why ETFs Moved In Step
- KWEB: The second-largest holding of the fund is Alibaba, typically accounting for 8–10% of assets. Rallying of Alibaba has a meaningful effect on the performance of the ETF, particularly when combined with movements in JD.Com Inc (NASDAQ:JD), PDD Holdings Inc (NASDAQ:PDD), and Meituan. The moderate gains in these stocks also captured macro optimism as well as sector-specific stimulus confidence.
- MCHI: With comprehensive market coverage, exposure to Alibaba makes this fund ride any rally in the stock and also capture the sentiment directed toward other Chinese large caps.
- FXI: Although more concentrated in financials and energy, FXI's inclusion of Alibaba as the second largest holding means its performance benefits when the e-commerce giant rallies alongside other blue-chip names.
Key Takeaways
For ETF investors, the week spotlights the interplay among global monetary signals, domestic Chinese policy, and geopolitical stability. Declining U.S. borrowing costs prompt risk-taking around the world, and Beijing’s targeted stimulus creates a benign domestic environment for funds with high exposure to consumer and tech sectors.
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