We flagged this exchange-traded fund back in January noting how out of favour the China was and how this was a low-cost way of gaining exposure to big Chinese stocks.
WHAT HAS HAPPENED SINCE WE SAID TO BUY?
For a while, very little. The ETF (and the MSCI China index it tracks) eked out some modest gains in the spring before the Chinese equity story lost momentum again. However, the promise of major stimulus from Beijing, as it looks to hit its 5% annual GDP growth target, proved a major catalyst in late September.
Measures announced included a lending pool to help fund managers, insurers and brokers buy more stock and initiate share buybacks as well as moves to stimulate a struggling Chinese property market.
Meanwhile, in mid-October the finance ministry pledged to ‘significantly increase’ debt to boost the economy and announced proposals to help stoke consumer demand.
While some of the initial excitement has faded, we are still up more than 30% on our initial entry point.
WHAT SHOULD INVESTORS DO NOW?
We think they should book this profit. The stimulus announcements haven’t stood up that well to closer examination, with analysts at investment bank Jefferies noting: ‘As stimulus hopes meet the reality, companies with the worst channel health face more risks. The recent market rally thus looks increasingly unjustifiable.’
We would agree and also believe that any exposure to China should be tactical rather than long term. We see significant geopolitical risks in the future and would also note China faces substantial demographic challenges which are more akin to those faced in the West than other emerging economies. A legacy of its longstanding one-child policy which means achieving material economic growth could be a major challenge.
For those who continue to want Chinese exposure this remains a perfectly good product, but for the reasons detailed above it is not one we would recommend buying at this point.
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
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