After years of losing ground to regulations and slow expansion, Chinese tech stocks are roaring back, and U.S.-listed ETFs tracking them are enjoying the ride.
Hang Seng Tech Index, which follows Hong Kong-listed giants like Alibaba Group Holding Ltd (NYSE:BABA), Baidu Inc (NASDAQ:BIDU), JD.com Inc (NASDAQ:JD), and Semiconductor Manufacturing International Corp (SMIC), rose 4.3% Wednesday to the highest since November 2021, as noted by Bloomberg. The benchmark is 45% higher in 2025 so far, driven by a mania of bets on artificial intelligence and signs of an easing in U.S.-China tensions.
U.S.-Listed ETFs Back In Play
For international investors, the most obvious vehicle to ride the rebound is U.S.-listed China tech ETFs. The KraneShares CSI China Internet ETF (NYSE:KWEB), an Alibaba-heavy bellwether fund that tracks other China internet giants like JD.com and Baidu, has been the most popular way to bet on China’s internet economy. Hopes of growth in Alibaba’s cloud business and Baidu’s self-developed AI chips have revitalized the fund after years of redemptions. The fund is up 2.4% on Wednesday.
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The Invesco Golden Dragon China ETF (NASDAQ:PGJ) is another option. Targeting U.S.-listed Chinese ADRs, PGJ offers exposure to the same tech stalwarts but lists in New York, allowing investors to get into them without passing through Hong Kong markets. The fund has gathered speed as Wall Street brokers raise their price targets on Chinese big tech. The fund gained almost 2% on Wednesday.
Meanwhile, the iShares MSCI China ETF (NASDAQ:MCHI), while broader in composition, is exposed to both internet and semiconductor names, and has seen its fortunes rise along with the tech-led rally. The fund carries names like Tencent Holdings (OTCPK: TCEHY), Alibaba, and Meituan. The fund is up more than 1% on Wednesday.
The Valuation Discount
What’s drawing investors in is the discount. According to Bloomberg, the Hang Seng Tech Index is trading at around 21 times forward earnings, lower than its five-year average of 23.3 and considerably lower than the Nasdaq 100’s 27.
Chinese technology leaders are also on a spending binge. Capital spending by JD.com, Baidu, Tencent, and Alibaba is set to more than double to $32 billion in 2025, Bloomberg Intelligence estimates. Bond issuances by Tencent and Alibaba also reflect how actively companies are issuing debt to finance AI plans.
Even with the rebound, the Hang Seng Tech Index is still 70% below its 2021 high. But with AI advances such as the DeepSeek model, state-sponsored chip research, and improved U.S.-China relations, China-focused exchange-traded funds could finally be making a transition from contrarian play to momentum trade.
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