The long-awaited international equity renaissance might finally play out in 2025. If that happens, China stocks appear poised for leadership. Consider the MSCI China Index, which is on a blistering pace to start 2025.
It’s worth noting that much of that bullishness is attributable to China’s growth and technology names. It’s not attributable to companies in which Beijing is the biggest investor. That upside of that theme is being confirmed in real time by ETFs like the WisdomTree China ex-State-Owned Enterprises Fund (CXSE ). As of February 18, CXSE was sporting a YTD gain of 12.9%, or triple the returns posted by the S&P 500 to start the year.
Obviously, 2025 is still in its early innings. A lot can change between now and the end of the year. However, ignoring trends can be foolhardy. Fighting them can be even worse. Said another way, the stars could be aligning for CXSE to deliver impressive performance this year.
CXSE Has Tailwinds
In a nod to potential upside for CXSE and friends, Morgan Stanley strategist Laura Wang boosted her 2025 targets for the MSCI China Index and Hong Kong equity gauges And she lifted her overall rating on Chinea equities to “equal weight.”
For investors considering CXSE and related ETFs, there’s more to the story. On Tuesday, China investors purchased the largest amount of Hong Kong-listed stocks in four years. But there could be more buying to come . That’s because data indicates global institutional investors have largely sat out the recent rally.
Specific to the $428.2 million CXSE, some of its marquee holdings are sporting favorable technical conditions. That indicates more buying could occur over the near term.
“E-commerce giant JD.com (JD), messaging and gaming titan Tencent (TCEHY) and online entertainment concern Bilibili (BILI) are all near buy points,” reported Ed Carson for Investor’s Business Daily.
Tencent and JD.com are CXSE’s largest and seventh-largest holdings, respectively, combining for 13% of the ETF’s roster. In what could be another assist to the CXSE thesis, U.S. hedge funds are buying China stocks. But in aggregate, those investors own just 3% of the asset class.
Investors Potentially Reversing China Assets Exodus
“In a recent letter to investors, the $112.5 billion Bridgewater Associates’ co-chief investment officer Karen Karniol-Tambour said that investors are likely to benefit from geographic diversification, with some preference to China,” reported Reuters. “BNP Paribas’ recent 2025 Hedge Fund Outlook anticipated that investors would reverse their exodus from China assets, noting that 7% of investors they surveyed were looking to add China exposure.”
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