China-focused ETFs are inching back into the spotlight as a softer U.S. dollar and signs of progress in U.S.-China trade talks reshape investor sentiment. While the S&P 500's nearly 850% run since 2009 and a consistently strong greenback have kept many portfolios home-biased, asset managers say the tide could subtly be turning.
KWEB ETF has surged 30% year-to-date. Check its real-time prices here.
“There's only one game in town over the last 16 years, which is the U.S.,” said Brendan Ahern, KraneShares chief investment officer, in a recent interview with Bloomberg. “For American investors, there's a big home bias, but I am a firm believer in market cycles and regime shifts.”
Ahern pointed out that most long-only funds are still heavily underweight in China, which would amplify any reversal in flows. Dollar strength has been a huge tailwind for U.S. equities until recently. But when the dollar declines, foreign assets can gain traction.
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Ahern noted that “from 1999 to 2009, you couldn't give US equities away. You had negative returns on the S&P 500 for a decade and non-US stocks, including emerging market and China, vastly outperformed.”
This climate may benefit China’s “new economy” industries, such as technology, healthcare, and clean energy. Ahern cited KraneShares’ anchor CSI China Internet ETF (NYSE:KWEB), which is up roughly 30% this year, as a proxy for the nation’s growth drivers. Other thematic funds include the KraneShares Electric Vehicles & Future Mobility ETF (NYSE:KARS) and robotics/AI strategies that track Beijing’s innovation push.
Wider China exposure is still attainable through the iShares China Large-Cap ETF (NYSE:FXI) and SPDR S&P China ETF (NYSE:GXC), although they are biased toward state-controlled companies. Consumer-oriented plays, such as the Global X MSCI China Consumer Discretionary ETF (NYSE:CHIQ), capitalize on the consumption narrative that has taken longer to recover but potentially stands to gain as the Chinese economy stabilizes.
China’s policy cues are fueling the theme. The State Council has committed to driving AI and smart vehicle development, as well as promoting service trade, and has dispatched a senior trade negotiator to Washington amid a tariff truce extension. “Economically, the US and China are highly intertwined and very dependent upon one another,” Ahern added. It’s in everybody’s interest to keep those channels open.
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