China’s position in the global economy is undeniably strong. It is responsible for approximately 10% of world stock market capitalization and trade, around 18% of world GDP, about 16% of global oil demand, and more than one fourth of global money. Oxford Economicsobserved that while China in 2024 has relatively relaxed policies, the private sector confidence is hindered by concerns relating to the property market. While the Chinese government is implementing policy measures that might negate downside risk, these might not be sufficient to reverse the economic slowdown. There is a chance that authorities might opt to stimulate the economy to achieve a higher growth target in 2024.
Major investment banks, including Goldman Sachs and Morgan Stanley, forecast a slower growth rate for China’s economy in 2024 compared to last year. The average prediction of five international banks is a 4.6% rise in real GDP in 2024, compared to the 5.2% growth expectation in 2023. JPMorgan’s Chief China Economist and Head of Greater China Economic Research Haibin Zhu commented in January 2024:
“An important task in 2024 is to manage the downside risk in the economy, particularly from the housing market correction and its spillover risks. Deflation pressure will likely fade in 2024, with the turnaround in global commodity prices and domestic pork prices, but low inflation will stay along with insufficient domestic demand.”
In the past, China’s economy was often experiencing double-digit growth, but the COVID pandemic and the real estate crisis has created a slump. In 2023, China reported growth in tourism and electronic vehicle sectors, but the economy failed to rebound, contrary to market expectations. In 2024, analysts expect significant easing of macroeconomic policies, especially by the central government, to assist the economy and impede a sharp decline in real GDP growth. TheInternational Monetary Fund (IMF) also amended its China growth forecast last year due to favorable policy announcement, but expects a slowdown to 4.6% in 2024, driven by inadequacies in the property sector and limited external demand. Premier Li said that China stayed away from comprehensive stimulus packages to avoid long-term risks. Analysts predict a further slowdown in China’s economy, with UBS estimating annual GDP growth rate to fall roughly to 3.5% after 2025, in part due to the housing slump hindering stimulus measures. However, the growth opportunities in China, especially in urbanization, manufacturing, services, and renewable energy, must be recognized. While China’s growth rate is forecasted to slow, it remains faster than many developed economies, with the IMF forecasting a slowdown in US real GDP growth from 2.1% in 2023 to 1.5% in 2024.
To provide insight into China's economic trajectory, JP Morganexamined key areas of interest in the Chinese economy and equity markets. First of all, the housing market is a significant indicator of market confidence. Despite experiencing its third year of slowdown, organic demand shows no signs of bottoming out, with price expectations turning bearish. In 2024, house sales in the early weeks were notably lower compared to last year, which emphasizes present challenges. Despite multiple programs set in place to aid the property market, their effectiveness and impact remains uncertain. Secondly, exports face cyclical challenges resulting from expectations of sluggish growth in developed markets and apprehensions about overcapacity. While export prices have become stable, there are increasing concerns about tensions in trade and resistance against China's dominance in some industries. Thirdly, increased regulations have dampened the business sentiment, resulting in a striking slowdown in private sector investment. 2024 is expected to be another challenging year for China's economy. The effectiveness of stimulus measures remains uncertain, and JP Morgan advises investors to remain vigilant amid ongoing uncertainties in the market.
China has set a growth target of "around 5%" for 2024 and announced the issuance of "ultra-long" special bonds for major projects. Premier Li Qiang, in delivering the government work report in March 2024, also pledged to remove restrictions for foreign investment in manufacturing. The deficit-to-GDP ratio for the year was set at 3%, down from a rare upward revision to 3.8% late last year. The report stated that Beijing will issue 1 trillion yuan or $138.9 billion in "ultra-long" special treasury bonds in 2024 to finance major projects aligned with national strategies. Additionally, 3.9 trillion yuan of special-purpose bonds for local governments will be issued this year, 100 billion yuan more than last year. China aims to achieve an urban unemployment rate of around 5.5%, create 12 million new urban jobs, and target a consumer price index increase of around 3% for 2024. The work report stressed upon the need to ensure high-quality development, higher security, preventing risks, and maintaining social stability. China also pledged to improve long-term mechanisms for preventing and controlling risks, meet justified financing demands of real estate enterprises, and mitigate local government debt risks while ensuring stable development.
It might be a good idea to invest in stocks and ETFs from China while they are trading in the red, to benefit from the world’s second largest economy when it’s back on track. To diversify investment portfolios, some of the best Chinese stocks to buy include PDD Holdings Inc. (NASDAQ:PDD), Alibaba Group Holding Limited (NYSE:BABA), and JD.com, Inc. (NASDAQ:JD). However, we discuss the best China ETFs in this article.
Our Methodology
We curated our list of the best China ETFs by choosing consensus picks from multiple credible websites. We have mentioned the 5-year share price performance of each ETF as of March 22, 2024, ranking the list in ascending order of the share performance. We have also discussed the top holdings of the ETFs to offer better insight to potential investors. All ETFs have an average trading volume of at least 20,000.
Navigating China's Economy: 10 Best China ETFs
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Navigating China's Economy: Best China ETFs
10. iShares China Large-Cap ETF (NYSE:FXI)
5-year Share Price Performance as of March 22: -46.51%
iShares China Large-Cap ETF (NYSE:FXI) aims to mirror the performance of the FTSE China 50 Index, consisting of large Chinese equities listed on the Hong Kong Stock Exchange. As of March 22, 2024, the ETF holds $4.4 billion in net assets, with an expense ratio of 0.74% and a portfolio comprising 50 stocks. iShares China Large-Cap ETF (NYSE:FXI) was launched on October 5, 2004. Despite trading in the red, iShares China Large-Cap ETF (NYSE:FXI) is one of the best China ETFs to buy, with average trading volume of 47.3 million as of March 22.
Tencent Holdings Limited (OTC:TCEHY) is the largest holding of the iShares China Large-Cap ETF (NYSE:FXI). Tencent Holdings Limited (OTC:TCEHY) is a Chinese investment holding company, providing value-added services, online advertising, fintech, and business services.
In addition to PDD Holdings Inc. (NASDAQ:PDD), Alibaba Group Holding Limited (NYSE:BABA), and JD.com, Inc. (NASDAQ:JD), Tencent Holdings Limited (OTC:TCEHY) is one of the best Chinese stocks.
9. KraneShares CSI China Internet ETF (NYSE:KWEB)
5-year Share Price Performance as of March 22: -44.33%
KraneShares CSI China Internet ETF (NYSE:KWEB) tracks the CSI Overseas China Internet Index, comprising Chinese companies primarily focused on internet and related technologies. The index provides access to Chinese firms offering services akin to Google, Facebook, Twitter, eBay, and Amazon. It offers exposure to companies benefiting from China's expanding middle class and includes Chinese internet firms listed in the US and Hong Kong. KraneShares CSI China Internet ETF (NYSE:KWEB) is one of the best Chinese ETFs, with an expense ratio of 0.69% and net assets amounting to $5.60 billion as of March 21, 2024. The fund was established on July 31, 2013.
Alibaba Group Holding Limited (NYSE:BABA) is one of the largest holdings of KraneShares CSI China Internet ETF (NYSE:KWEB). On March 21, Alibaba Group Holding Limited (NYSE:BABA) reported a 14% increase in active B2B buyers in the US during this year's March Expo, its annual online trade fair. The company also disclosed a 10% year-over-year growth in daily transaction volume for the US market.
According to Insider Monkey’s fourth quarter database, 116 hedge funds were bullish on Alibaba Group Holding Limited (NYSE:BABA), compared to 110 funds in the last quarter.
Baron Emerging Markets Fund stated the following regarding Alibaba Group Holding Limited (NYSE:BABA) in its fourth quarter 2023 investor letter:
“Alibaba Group Holding Limited (NYSE:BABA) is the largest retailer and e-commerce company in China. Alibaba operates shopping platforms Taobao and Tmall and owns 33% of Ant Group, which operates Alipay, China’s largest third-party online payment provider. Shares of Alibaba were down in the fourth quarter due largely to the delay of the previously announced spin-off of its cloud division. Quarterly results were roughly in line with Street expectations, with strength in profitability. We retain conviction that Alibaba is well positioned to benefit from the ongoing growth in online commerce and cloud development in China. While the company is seeing early progress in its efforts to re-invigorate customer engagement and retention as well as merchant investment initiatives, we believe this investment will likely take some time to flow through to accelerating earnings growth. As such, we remain investors but have reduced our position as we monitor further progress.”
8. iShares MSCI Hong Kong ETF (NYSE:EWH)
5-year Share Price Performance as of March 22: -39.49%
iShares MSCI Hong Kong ETF (NYSE:EWH) ranks 8th on our list of the best China ETFs. The fund aims to mirror the performance of the MSCI Hong Kong 25/50 Index, which offers exposure to large and mid-sized companies in Hong Kong. As of March 22, 2024, the fund holds $501.3 million in net assets, with a portfolio consisting of 31 stocks, and an expense ratio of 0.50%. iShares MSCI Hong Kong ETF (NYSE:EWH) was launched on March 12, 1996.
AIA Group Limited (HKSE:1299.HK) is the largest holding of the iShares MSCI Hong Kong ETF (NYSE:EWH). AIA Group Limited (HKSE:1299.HK) provides life insurance and financial services, including accident and health insurance, savings plans, and employee benefits.
7. Invesco Golden Dragon China ETF (NASDAQ:PGJ)
5-year Share Price Performance as of March 22: -38.99%
Invesco Golden Dragon China ETF (NASDAQ:PGJ) tracks the NASDAQ Golden Dragon China Index, investing primarily in equity securities of companies generating most of their revenues from China. The index consists of US-listed companies headquartered or incorporated in China, and the ETF typically allocates at least 90% of its assets to these securities. Invesco Golden Dragon China ETF (NASDAQ:PGJ) ranks 7th on our list of the best China ETFs. As of March 20, 2024, the fund offers a net expense ratio of 0.70% and a portfolio comprising 62 stocks.
Yum China Holdings, Inc. (NYSE:YUMC) is one of the largest holdings in Invesco Golden Dragon China ETF (NASDAQ:PGJ)’s portfolio. Yum China Holdings, Inc. (NYSE:YUMC) runs restaurants under brands like KFC, Pizza Hut, Taco Bell, and more. On February 7, the company declared a quarterly dividend of $0.16 per share, a 23.1% increase from its prior dividend of $0.13. The dividend is payable on March 26, to shareholders on record as of March 5. Yum China intends to repurchase $1.25 billion worth of its common stock in 2024 through open market transactions in the United States and Hong Kong.
According to Insider Monkey’s fourth quarter database, 22 hedge funds were long Yum China Holdings, Inc. (NYSE:YUMC), compared to 29 funds in the prior quarter.
Like PDD Holdings Inc. (NASDAQ:PDD), Alibaba Group Holding Limited (NYSE:BABA), and JD.com, Inc. (NASDAQ:JD), Yum China Holdings, Inc. (NYSE:YUMC) is one of the top Chinese stocks to monitor.
Baron Emerging Markets Fund stated the following regarding Yum China Holdings, Inc. (NYSE:YUMC) in its fourth quarter 2023 investor letter:
“Yum China Holdings, Inc. (NYSE:YUMC) is the master franchisee for the YUM brands in China and operator of the KFC and Pizza Hut restaurant networks in that market. Shares detracted after the company reported a negative surprise on margins for the third quarter and hinted that increased competition and cost-consciousness among Chinese consumers could cause that margin compression to continue through the first quarter of 2024. Although in-year margins are volatile at Yum China, its pristine balance sheet, cumulative investments in technology, unmatched scale, and successful pivot to higher-ROI, smaller footprint stores in recent years should drive continued 8% to 10% store growth at attractive returns. Further, given its strong free-cash-flow generation and strong balance sheet, we believe the company is likely to offer capital returns to shareholders in excess of earnings over the next several years. We remain shareholders.”
6. iShares MSCI China ETF (NASDAQ:MCHI)
5-year Share Price Performance as of March 22: -36.68%
iShares MSCI China ETF (NASDAQ:MCHI) is one of the best China ETFs. iShares MSCI China ETF (NASDAQ:MCHI) aims to mirror the performance of the MSCI China Index, which consists of Chinese equities accessible to international investors. The ETF’s net assets as of March 22, 2024 exceed $5 billion. Its expense ratio came in at 0.59%, along with a portfolio consisting of 661 holdings. iShares MSCI China ETF (NASDAQ:MCHI) was launched on March 29, 2011.
PDD Holdings Inc. (NASDAQ:PDD) is one of the top stocks in iShares MSCI China ETF (NASDAQ:MCHI)’s portfolio. On March 20, PDD Holdings Inc. (NASDAQ:PDD) reported a Q4 non-GAAP EPADS of $2.40 and a revenue of $12.52 billion, outperforming Wall Street estimates by $0.75 and $1.68 billion, respectively.
According to Insider Monkey’s fourth quarter database, 71 hedge funds were long PDD Holdings Inc. (NASDAQ:PDD), compared to 66 funds in the last quarter. Lei Zhang’s Hillhouse Capital Management is the largest stakeholder of the company, with 10.1 million shares worth $1.5 billion.
Baron Emerging Markets Fund stated the following regarding PDD Holdings Inc. (NASDAQ:PDD) in its fourth quarter 2023 investor letter:
“We added to our digitization theme by building a position in PDD Holdings Inc. (NASDAQ:PDD), a leading Chinese e-commerce platform. Founded in 2015, the company has emerged as China’s second largest e-commerce player, capturing approximately 20% market share. In our view, PDD’s competitive moat lies in its team purchase model that facilitates bulk buying through direct partnerships with manufacturers, thereby eliminating intermediaries (e.g., distributors and middlemen) and lowering costs. Key factors driving the company’s meteoric growth include rising consumer demand for affordable products in China amid an economic slowdown, small-scale merchants seeking alternatives to Alibaba, and superior management execution. PDD’s revenue growth outpaces gross merchandize value growth owing to rising take rates as merchants aggressively compete for consumer traffic on the platform. In our view, PDD should continue to gain market share given its dominance in the value-for-money segment, growing affordable branded product offerings, and high operational efficiency. We believe the company’s growth will be further supported by the recent launch of its international e-commerce platform, Temu, which has become one of the fastest growing apps globally. Leveraging China’s excess manufacturing capacity, Temu has strong negotiating power with domestic suppliers and attracts global consumers with competitively priced products. Temu’s recent initiatives to improve unit economics, coupled with achieving variable break even in the sizable U.S. market, showcase management’s skill and commitment to sustained growth. We expect PDD to at least double its earnings and free cash flow in the next three years, with the potential for continued compounding thereafter.”
