HSBC MSCI China UCITS ETF USD (HMCH)

Price: 419p

Fund size: £480 million

China is one of the biggest contrarian calls for 2024, with tensions between the world’s second biggest economy and the West on the rise over issues including access to the latest technology and the fate of Taiwan which is pivotal to the global semiconductor manufacturing industry.

In addition, concerns over the populous Asian nation’s debt and its property sector, as well as a post-Covid economic rebound which has struggled to gain traction, are all reflected in the lowly valuations currently ascribed to Chinese stocks.

For risk-tolerant investors eager for exposure to this gargantuan emerging market and its exciting technology stocks with huge potential as the AI (artificial intelligence) era begins, this is as compelling an entry point as you’re likely to get.

Chinese equities could take off like a rocket and re-rate from depressed levels as earnings momentum improves in the year ahead, thereby rewarding the bold.

One low-cost way to gain exposure is through the HSBC MSCI China UCITS ETF USD (HMCH), the cheapest exchange-traded fund tracking the MSCI China index with charges of just 0.28%. However, this product isn’t for the risk-averse or those who dislike volatility, having delivered negative total returns of 26.5% and 46.8% over one and three years respectively. For the adventurous investor, however, this £480 million fund offers a high-octane play on the recovery potential of China, the domain of many market-leading companies.

The ETF aims to track as closely as possible the returns of the MSCI China Index, which tracks the largest and most liquid Chinese stocks, replicating the performance of the underlying index in full. For the uninitiated, this means the fund buys every single index constituent, while the dividends in an ETF offering a 2.2% yield are distributed semi-annually.

As of 30 November 2023, the fund offered diversified exposure via 767 holdings with a very forgiving price to earnings ratio of 13.1 implying significant re-rating scope. Top 10 holdings included modestly-valued Chinese internet titans Tencent (0700:HKG), among the globe’s highest grossing multimedia companies by sales, and Alibaba (9988:HKG), one of the world’s largest retailers and e-commerce companies.

Prospective investors are also buying into the likes of JD.com (9618:HKG), a major competitor to Alibaba-run Tmall, not to mention Baidu (9888:HKG), which is China’s answer to Google parent Alphabet (GOOG:NASDAQ), Chinese food delivery leader Meituan (3690:HKG) and insurance-to-banking behemoth Ping An Insurance (2318:HKG). 

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