Market alert: Investing in China

1:22 PM July 27, 2021

In this article:

  • New regulations hit Chinese stocks
  • CHNComp in bear market despite euphoria on Wall Street
  • How to gain exposure to China

“Be greedy when others are fearful” – this statement from Warren Buffett has been covered in dust as major global equity markets seem to be in unending rally. However, there’s one place where there’s a lot of investors concerns at present – China. Over the weekend Beijing issues new regulations effectively shutting down online education sector. While the sector itself is not a huge part of the stock market, these regulations follow many actions taken against tech companies and investors worry that more might come soon. This has caused a significant repricing of equities and Hang Seng China Enterprises Index (CHNComp) is just some 10% above 2020 pandemic lows!

Then again, China has quickly recovered from the pandemic and it’s gaining share in the global economy. One may argue that while the government wants to maintain some degree of control over the tech sector, these companies remain crucial for economic dominance and thus Beijing will be wary of going too far. Looking at the record valuations on Wall Street, some may see the sell off as an opportunity.

How to invest to gain exposure on China?

That depends on the priorities – investors seeking to benefit from a potential rebound in stock on the near term could consider CHNComp which is a CFD on Hang Seng China Enterprises Index futures while long term investments can be done through ETFs – let’s take a closer look.

CHNComp was above 12200 points as recently as February but plunged below 9000 on Tuesday. Investors hoping for a quick recovery can consider this CFD due to 1:10 leverage but they need to remember that leverage works both ways – multiplying possible gains but also losses.

Among ETFs on China one can consider:

Lyxor China Enterprise HSCEI – this has exactly the same exposure as CHNComp – these are the largest Chinese stocks traded in Hong Kong, the ETF has a relatively high TER of 0.65% (total expense ratio)

iShares MSCI China A UCITS ETF – intriguing due to the fact that it represents stocks traded on mainland exchanges that until recently were unavailable (or hard to invest in) by foreign investors. However, these stocks are generally still relatively close to their recent highs (TER 0.4%)

iShares MSCI China UCITS ETF – yes, it only misses this “A” letter but it makes a huge difference as the A shares are under-represented in the index (only 20% of their market cap is represented) and thus the top stocks are similar to those that are seen in HSCEI. However, this one is well  diversified with as many as 736 constituents (TER 0.4%)

Xtrackers FTSE China 50 ETF – this one is more concentrated (as the name suggests) and there are no A-shares included while it’s also more expansive (TER 0.6%)  

You can find out more in the ETF scanner in the Market Analysis section of the platform.

The content of this report has been created by X-Trade Brokers Dom Maklerski S.A., with its registered office in Warsaw, at Ogrodowa 58, 00-876 Warsaw, Poland, (KRS number 0000217580) and supervised by Polish Supervision Authority ( No. DDM-M-4021-57-1/2005). This material is a marketing communication within the meaning of Art. 24 (3) of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II). Marketing communication is not an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC and Commission Delegated Regulation (EU) 2016/958 of 9 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the technical arrangements for objective presentation of investment recommendations or other information recommending or suggesting an investment strategy and for disclosure of particular interests or indications of conflicts of interest or any other advice, including in the area of investment advisory, within the meaning of the Trading in Financial Instruments Act of 29 July 2005 (i.e. Journal of Laws 2019, item 875, as amended). The marketing communication is prepared with the highest diligence, objectivity, presents the facts known to the author on the date of preparation and is devoid of any evaluation elements. The marketing communication is prepared without considering the client’s needs, his individual financial situation and does not present any investment strategy in any way. The marketing communication does not constitute an offer of sale, offering, subscription, invitation to purchase, advertisement or promotion of any financial instruments. X-Trade Brokers Dom Maklerski S.A. is not liable for any client’s actions or omissions, in particular for the acquisition or disposal of financial instruments, undertaken on the basis of the information contained in this marketing communication. In the event that the marketing communication contains any information about any results regarding the financial instruments indicated therein, these do not constitute any guarantee or forecast regarding the future results.