Between Sept. 24 and Sept. 26, the Chinese government and the People’s Bank of China — the Chinese central bank — announced its largest economic stimulus program since the darkest days of the COVID-19 pandemic. Public statements surrounding the move indicate that even more economic and fiscal stimulus is forthcoming. The message was clear: the government of China is prepared to take dramatic and meaningful action to revive weak credit demand and stimulate its struggling economy.
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Wall Street took immediate notice. Some major Chinese companies such as online retailer Alibaba Group Holding Ltd. (ticker: BABA) and JD.com Inc. (JD) have appreciated dramatically since the announcement. Retail and institutional investors alike are taking a fresh look at Chinese securities and, in many cases, they’re finding value and opportunity.
In short, Chinese investments are attractive again. But with hundreds of Chinese stocks trading on U.S. exchanges, which ones should investors buy? International investing is a complex and sophisticated endeavor. In most cases, buying individual Chinese stocks or bonds is best left to professionals who have specialized, extensive knowledge of the region. Most retail investors are better off owning diversified and professionally managed exchange-traded funds, or ETFs. ETFs also offer the benefit of automatic diversification, as investors buy into a fund composed of numerous individual stocks.
If you agree that the announced government and central bank intervention could be a catalyst for long-term growth in the Chinese markets, check out this timely list of seven high-quality ETFs to invest in China:
| ETF | Assets Under Management | Expense Ratio |
| Invesco Golden Dragon China ETF (PGJ) | $144 million | 0.67% |
| Franklin FTSE China ETF (FLCH) | $140 million | 0.19% |
| VanEck ChiNext ETF (CNXT) | $18.7 million | 0.65% |
| Invesco China Technology ETF (CQQQ) | $783 million | 0.65% |
| WisdomTree China ex-State-Owned Enterprises Fund (CXSE) | $437 million | 0.32% |
| iShares China Large-Cap ETF (FXI) | $4.9 billion | 0.74% |
| Direxion Daily CSI China Internet Bull 2X Shares (CWEB) | $410 million | 1.28% |
Invesco Golden Dragon China ETF (PGJ)
PGJ is an index fund that tracks the Nasdaq Golden Dragon China Index. That index is made up of about 260 companies domiciled in China that trade on U.S. exchanges as American depositary receipts, commonly called ADRs.
PGJ holds stocks from several sectors, but it concentrates on technology, consumer goods, health care and financials. Overall, it offers decent diversification and a good representation of the Chinese market’s performance.
The fund has declined over the last several years due to increased scrutiny by U.S. regulators on Chinese stocks and other factors. Still, PGJ has benefited and should continue to benefit from the Chinese government’s positive interventions.
PGJ has assets under management topping $144 million and an expense ratio of 0.67%, which is reasonable compared to its peers in the space.
Franklin FTSE China ETF (FLCH)
FLCH is designed to track the FTSE China Capped Index. The $140 million ETF gives investors broad exposure to large-cap and mid-cap Chinese stocks. The index and the ETF employ predetermined capping measures that protect against overconcentration in any single position. In this way, FLCH is able to provide good diversification while mitigating risk.
With a small expense ratio of 0.19%, FLCH is a low-cost, targeted way to add China exposure to a portfolio. Investors should be aware, however, that the benchmark and the ETF can be volatile.
There are currently 950 holdings in the fund. Income-conscious investors will be happy to learn that FLCH has a 12-month trailing yield of 2.4%.
VanEck ChiNext ETF (CNXT)
CNXT is a small ETF with a lot of long-term growth potential. The fund tracks the ChiNext Index, which comprises the 100 largest and most liquid stocks listed on the ChiNext Board of the Shenzhen Stock Exchange.
For investors not familiar with the ChiNext Board, it can be loosely compared to the Nasdaq in the U.S. It focuses on high-growth Chinese stocks mainly, though not exclusively, in the technology and health care sectors.
Keep in mind, CNXT is not a conservative ETF. The fund is focused on tech and health care; two sectors that can be more volatile than the overall market. For investors who understand the risks, however, this fund is a good choice for people looking to invest in the next generation of leaders in Chinese equities.
The fund has an expense ratio of 0.65%, has $18.7 million in assets under management and does not pay a regular dividend. Be aware that with only about $19 million in assets, this fund may be more volatile and less liquid than other China ETF counterparts.
[READ: 5 Best Short-Term Investments for Generating Income]
Invesco China Technology ETF (CQQQ)
The “FTSE China Incl A 25% Technology Capped Index” may have an ugly name, but it’s a unique and innovative benchmark that is designed to represent broad exposure to the China-based technology sector. CQQQ is a $783 million ETF that tracks that index.
Despite the significant challenges of operating a public company in China, many Chinese tech stocks have demonstrated impressive growth over the years, especially in the areas of digital payment systems, cloud computing and e-commerce.
Additionally, the Chinese consumer market is massive — China has a population of more than 1.4 billion — and the country has a rapidly emerging middle class. As its economy grows, the already robust demand for high tech products and services will grow with it. If relations with Western countries improve in the coming years, demand for Chinese tech will be further bolstered.
All of this contributes to the intriguing investment rationale behind buying CQQQ and holding it for the long run.
The expense ratio for the fund is 0.65% and the 12-month trailing dividend yield is 0.5%.
WisdomTree China ex-State-Owned Enterprises Fund (CXSE)
One of the drawbacks of investing in China is the sometimes intrusive involvement of the Chinese government. Companies that are in the good graces of the Chinese Communist Party can receive valuable support, but firms that run afoul of the government can find themselves under intense, often detrimental scrutiny.
CXSE attempts to mitigate that risk by avoiding stocks that are unduly controlled by the government. The $437 million ETF tracks the Wisdom Tree China ex-State-Owned Enterprise Index. The fund is designed to track the performance of Chinese stocks, but it purposefully excludes companies that are more than 20% owned or otherwise controlled by the government.
The ETF, like its benchmark, is cap-weighted and float-adjusted, meaning larger, more liquid stocks receive higher allocations in the portfolio.
CXSE provides investors with a 12-month trailing yield of 1.6% and carries a relatively low expense ratio of 0.32%.
iShares China Large-Cap ETF (FXI)
FXI is a straightforward, $4.9 billion index ETF that mirrors the FTSE China 50 index. That benchmark is well-known among international investors as an excellent representation of the biggest and most widely traded Chinese stocks.
FXI owns the 50 largest Chinese stocks listed on the Hong Kong Stock Exchange as measured by market capitalization. The most heavily represented sectors in the fund’s portfolio are financials, telecommunications, energy and consumer goods.
Investors can look at this ETF as a blue-chip fund of Chinese stocks. Unlike the previous fund on this list, FXI does invest in stocks that are substantially controlled by the Chinese state. It will also occasionally invest in companies that are domiciled outside of China but generate most of their revenue and profit from inside the country.
The 12-month trailing yield for FXI is a healthy 2.2%. The expense ratio is 0.74%.
Direxion Daily CSI China Internet Bull 2X Shares (CWEB)
CWEB is an innovative, leveraged ETF that uses the CSI Overseas China Internet Index as its benchmark. The goal of CWEB, however, is not to match the daily performance of the index but to roughly double it.
The index was designed to be representative of the entire universe of Chinese internet and internet-related stocks. To accomplish its objective of doubling the performance of the benchmark, CWEB buys stocks, ETFs and a type of securities derivatives called swap agreements, which it buys using high levels of leverage.
Investing in China is inherently risky, and buying CWEB — a leveraged security — adds an additional layer of risk and involves more volatility. Unlike the other ETFs on this list, CWEB is not recommended as a long-term hold. The fund is actively managed on a day-to-day basis. There can be no assurances that the fund will achieve its objective over longer time horizons.
CWEB is a fairly expensive ETF with an expense ratio of 1.28%, but it does provide a 12-month trailing yield of 1.5%.
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7 Best China ETFs to Buy Now originally appeared on usnews.com
Update 10/07/24: This story was previously published at an earlier date and has been updated with new information.
