Despite the lingering uncertain outlook with trade disputes not yet settled, Chinese market and country-specific ETFs still offer opportunities for investors.
“Regardless of what ultimately happens with the China trade tensions, there is a robustness to China that doesn’t exist anywhere else in the emerging markets,” Lewis Kaufman, a portfolio manager at Artisan Partners, the Artisan Developing World (ARTYX), told CNBC. “We want to be leveraged to that.”
“There’s an ecosystem for capital formation. It’s very difficult to access domestic demand through the vehicles we would wish to use in so many emerging-market countries,” Kaufman add.
Chinese markets have pulled back since the U.S.-China trade war escalated in early 2018, with the Shanghai Composite still in the red. For over a year, Chinese and U.S. officials have piled on trade barriers on billions of dollars worth of goods. The escalating tariffs have weakened the investment outlook on growing growth concerns.
“In China, we’ve got the trade tensions. We’ll see how that evolves. There’s certainly a possibility we’re in a deeper, more drawn out trade tension. There’s also a possibility that gets resolved, although I think that probability is falling,” Kaufman said. “But my point is there is a robustness to the Chinese economy and equity story that really doesn’t exist anywhere else in the emerging markets.”
Specifically, Kaufman pointed to the huge population and strength of the domestic consumer market in China. As the emerging market develops and improves, a growing middle-income class will have higher discretionary spending to purchases more goods to better their lives. The domestic demand story will continue to grow and support the shifting economic model in China away from its original export industry focus.
Investors who are interested in accessing the Chinese markets have a number options to choose from. For example, the iShares China Large-Cap ETF (NYSEArca: FXI) tracks 50 of the largest Chinese companies listed through Hong Kong, which includes a heavy tilt towards the financial sector. The iShares MSCI China ETF (NASDAQ: MCHI), which tracks the MSCI China Index, takes a broader approach and includes large tilts toward communication, financial and consumer discretionary names. Additionally, something like the Xtrackers Harvest CSI 300 China A-Shares ETF (NYSEArca: ASHR) allows investors to gain access to Chinese mainland listed company stocks or the China A-shares market.
For more information on the Chinese markets, visit our China category.
