The economy of China remains in a tenuous spot. But Beijing’s renewed, overt emphasis on shoring up the world’s second-largest has been a boon for previously downtrodden China stocks and related ETFs.
Over the prior two weeks, China equities and related ETFs have been reborn, ranking as among the best-performing assets in the world. Just look at the WisdomTree China ex-State-Owned Enterprises Fund (CXSE ). That ETF gained almost 16% last week, following through on a scorching hot run the week before. CXSE is up nearly 45% over just the past month.
The People’s Bank of China (PBOC) played a significant role in the recent resurgence of China stocks. It pared interest and mortgage rates. And it doled out 500 billion yuan to compel investors to buy equities and 300 billion yuan to entice companies to repurchase their own shares. Potentially bolstering the case for ETFs such as CXSE is the depth and clarity of Beijing’s efforts to support the national economy.
Tailwinds Abound for CXSE
Clearly, China’s recent fiscal and monetary efforts were greeted with open arms by global investors. But some market observers believe those plans need to be more start than finish. Beijing appears ready to comply.
“They made it clear they are ready to spend more. The government is pledging to increase public spending because other parts of the economy, like corporates and consumers, are holding back,” noted Robin Xing, Morgan Stanley’s chief China economist. ”There is also a big focus on the housing market, which has been in decline since 2021. They are promising to stop that slide, and it’s the strongest commitment we have seen so far.”
It’s clear assets such as CXSE have benefited from Beijing’s efforts to restore order to China’s economy. But it’s also obvious that more is needed. “More” could be quantified as big spending and different plans for shoring up the economy. Either of those could provide support for CXSE holdings.
Deeper Issues Will Require More Work
“Beijing seems open to trying different approaches, but fixing the deeper issues — like the struggling housing market and the local government debt — it’s going to take a lot. In fact, we think China might need to spend about 1-1.5 trillion dollars over the next two years to really turn things around,” added Xing.
Two years is a fair amount of time, and it might not jibe with some investors’ time horizons. But for those considering CXSE and looking for near-term catalysts, Xing highlighted the NPC Standing Committee later this month, which could bring news about “consumer spending, increasing social welfare, and helping local governments managing their debt.”
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