China ETFs: Experts Reveal Their #1 Picks

China had a problem.

No matter how much the central government tried, the economy couldn’t get out of first gear…until recently.

After losing 13% last year and struggling to start 2024, the Hang Seng Index surged 5.3% last week.

That got financial pros quickly scouring for China ETFs.

Top among them was the popular KranShares CSI China Internet ETF (KWEB).

With a focus on Chinese tech stocks, you can own high growth at big discounts.

Which sounds awesome…but there’s a catch…

Here’s what you need to know.

Key Facts About KWEB

• Net assets: $4.74 billion
• 12-month trailing yield: 1.96%
• Inception: July 31, 2013
• Expense ratio: 0.69%
• Number of holdings: 33

China’s market is divided into two areas: Hong Kong and mainland.

Hong Kong’s Hang Seng index includes names you’re familiar with like Alibaba, Tencent, and others.

The Shanghai mainland index is geared more towards traditional companies, including Kweichow Moutai, Bank of China, and others, with over 20% of its weight made up of financials.

The KWEB ETF invests in Internet and Internet-related companies that trade on the Hang Seng or are listed on U.S. exchanges.

Source: KranShares

Performance

China’s crackdown on private businesses and Covid shutdowns destroyed value in nearly every part of the Chinese economy.

This forced investors to reassess the risk associated with investments in China, especially the more liberal Hong Kong companies like Alibaba.

Consequently, the performance from 2010-2019 was fantastic. But once the government got involved, the total performance plunged, erasing the gains for the last decade.

Source: KranShares

However, recent scuttlebutt about the central government pulling back on its heavy-handed approach, along with better-than-expected economic readings, have gotten big money investors reengaged in the market.

Competition

Foreign ownership of Chinese companies is strictly controlled, if not outright prohibited.

However, there are multiple ETFs offering different investment angles to the Chinese markets.

• iShares China Large-Cap ETF (FXI): A popular ETF, the FXI is a market-cap-weighted index that invests in large-cap companies traded on the Hang Seng Exchange.
• iShares MSCI China ETF (MCHI): MCHI is a broader market-cap weighted ETF owning companies listed on both the Shanghai and Hang Seng exchanges.
• Xtrackers Harvest CSI 300 China A-Shares Fund (ASHR): The ASHR is a market-cap-weighted ETF owning the top 300 stocks on the Shanghai exchange.
• Invesco China Technology ETF (CQQQ): The Invesco China Technology ETF mainly focuses on tech stocks from the FTSE China Indexes, including a mix of China A-shares and B-shares, plus some depositary receipts for broader exposure.

The only ETF with positive overall performance is the ASHR, which focuses specifically on larger companies traded on the Shanghai exchange.

Every other ETF has gotten hammered over the same period.

Our Opinion 10/10 

We feel that the KWEB is the ETF in the best position to catch a rebound in the Chinese economy and any liberalization in government policies.

That’s not to say either of these will happen.

However, we feel the discount on the companies owned by the ETF is attractive so long as investors size their positions relative to the risk.

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