Following a scorching rally last week, the WisdomTree China ex-State-Owned Enterprises Fund (CXSE ) tacked on another 1.84% on volume that was about 7x the daily average on Monday. Making that gain all the more impressive was the fact that the MSCI China Index closed slightly lower on the day.
Reading too much into a single day of price action isn’t advisable. However, CXSE’s performance on the final day of September shows the ETF’s potential to follow through on the positivity fostered by last week’s macroeconomic headlines out of China. Those included a series of interest rate cuts and mortgage reductions by the People’s Bank of China (PBOC). Additionally, there were stimulus plans for select segments of the populations.
Investors welcomed those moves. However, some market observers believe China needs to do more to support its still fragile economy.
Rate Cuts Just a Starting Point
CXSE benefited because the recent resurgence by Chinese stocks was driven in large part by technology and healthcare names. Those sectors combine for about 17% of the ETF’s portfolio. However, some experts believe the economy needs more stimulus.
Nigel Green of deVere Group out that while last week’s moves by the PBOC and the stimulus plan are encouraging, more of the latter is needed to foster needed confidence in Chinese markets.
“The current policies are geared toward stabilizing the economy, but they lack the depth required for a sustainable, long-term impact. These measures are akin to a quick fix—they address the symptoms but not the root causes of China’s economic malaise,” noted Green.
The aforementioned stimulus effort targets those in lower income brackets. The mortgage rate cut could benefit as many as 150 million citizens. In aggregate, those are significant numbers, but still a small percentage of China’s overall population. Green said the economy needs broader stimulus.
“Beijing’s efforts so far have largely focused on monetary policies, but fiscal stimulus—such as increased government spending on infrastructure projects and incentives for consumer spending—could provide a much-needed boost to economic demand,” he said. “Investors, both domestic and international, are watching closely to see whether Beijing will take bolder steps to solidify its economic foundation. If this happens, China will emerge stronger than ever.”
The point about consumer spending is highly relevant to investors considering CXSE. The WisdomTree ETF allocates 37.17% of its weight to consumer discretionary stocks.
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