Last week, China stocks and related ETFs delivered scintillating performances. That was due largely to fiscal and monetary measures that show Beijing is serious about propping up the its economy.
Just look at the WisdomTree China ex-State-Owned Enterprises Fund (CXSE ). That ETF surged 21.27% last week. In the process, it erased all of its YTD losses. It turned positive to the tune of 16.17%, while notching a new 52-week high on Friday. That occurred after the People’s Bank of China (PBOC) cut its reserve requirement ratio (RRR) and its seven-day reverse repo rate, while also paring mortgage rates.
That news was followed by reports by China state-run media that the Ministry of Finance and Ministry of Civil Affairs are preparing to distribute cash payments to some segments of the Chinese population. Beijing wants those disbursements to commence as soon as Oct. 1.
CXSE Right Place, Right Time
CXSE, which turn 12 years in September, is pertinent as a China stimulus play. That’s because the ETF allocates 37% of its weight to consumer discretionary stocks, And it’s clear Beijing wants to juice consumer spending. As one example, the aforementioned mortgage reduction by the PBOC affects 50 million China households and 150 million citizens.
The combination of fiscal stimulus and monetary easing is one reason some professional investors are again eyeing China equities. Some market participants believe the policy measures announced last week are just the start. And there’s more to come that could enhance the allure of China stocks, including CXSE holdings.
“I thought that what the Fed did last week (its 50 basis points cut) would lead to China easing. And I didn’t know that they were going to bring out the big guns like they did,” said Appaloosa Management Founder David Tepper in an interview with CNBC. “They exceeded expectations, and [People’s Bank of China governor Pan Gongsheng] promised to do more and more and more. And that’s very strange language, especially for any central banker, but especially over there.”
Additional Good News
There’s more good news, even for investors that weren’t allocated to China stocks and ETFs like CXSE prior to last week. Even with last week’s surge, China stocks are still deeply discounted relative to counterparts in other parts of the world, including the U.S. That’s particularly relevant to investors considering CXSE. And that’s because the ETF allocates over two-thirds of its weight to consumer cyclical, communication services, and tech stocks.
“Even with the recent moves they’re like on a flat-line low compared to where they have been in the past. And you’re sitting there with single multiple PEs, with double-digit growth rates for the big stocks that trade over here,” added Tepper in the CNCB interview.
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