Recent interest rate cuts and stimulus announcements propelled the MSCI China Index to a 22.32% gain for the three months ending Oct. 23. But a pullback off the highs by China equities suggests global investors remain cautious on previously downtrodden China markets.
Yet Beijing and the People’s Bank of China (PBOC) are placing renewed emphasis on shoring up China’s economy. Those looking for China exposure without the commitment of a single stock or a dedicated China ETF may want to consider the actively managed WisdomTree Emerging Markets Multifactor Fund (EMMF ).
The fund’s country exposures can adjust more rapidly compared to passive competitors. Currently, the country is the ETF’s third-largest geographic weight. That marks a stark departure from traditional passive emerging markets funds. Those typically devote close to a third of their rosters to the country’s stocks.
Evaluating EMMF
Investors skittish about China and those wanting to see more on the stimulus front might consider EMMF.
“While the market has welcomed this news, the effectiveness of these new liquidity facilities remains [untested. And] their success will be measured by how much the prevailing negative sentiment on China is reversed. PBOC generally is considered to be [credible. But] we expect the market to gradually learn and also test out PBOC’s success in following through,” noted Liqian Ren, director of modern alpha at WisdomTree.
Additionally, EMMF could appeal to advisors and investors seeking EM exposure because of its focus on fundamentals. Quality and value metrics feature in the fund’s securities selection process. Finding value among developing world equities isn’t necessarily difficult. That said, quality is a different matter. It’s relevant at a time when China is still attempting to shed the burden of weakness in its property market.
Fundamentals Matter
The bottom line is that fundamentals always matter. And EMMF’s fundamental approach could make it a little easier for investors to tap into a potential China resurgence.
“China’s baseline remains that when sentiment turns negative and economic data underperforms, the government will implement some stimulus measures to meet its economic targets. However, the recovery process is unlikely to be [smooth. And] improvements in household and company balance sheet will take time,” added Ren.
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