Amid intensifying trade tensions with the U.S., previously high-flying China exchange traded funds have been punished this month. The VanEck Vectors ChinaAMC SME-ChiNext ETF (CNXT ) is off nearly 14% in May, but CNXT is one China ETF that could be a leader when Chinese equities rebound.
Earlier this month, markets plunged after President Trump over the weekend threatened to raise tariffs on $200 billion of Chinese goods from 10% to 25% at the end of the week and targeted hundreds of billions more soon, attributing the sudden amp up in tariff threats to negotiators dragging their feet.
CNXT could prove advantageous to tactical investors considering China because of its exposure to growth stocks and lack of exposure to state-owned enterprises (SOEs). A mix of Chinese stimulus measures have been providing the fodder for economic growth, such as lower taxes, no corporate tax breaks, monetary policy adjustments, and more market access for foreign companies to set up shop. All in all, Wall Street is looking at the Chinese government’s latest efforts as a plus for its economy.
“For investors looking to capitalize on the evolution of the Chinese economy towards a consumer-based economy, there are other indices available that have a heavy weighting towards ‘new economy’ sectors,” said VanEck in a recent note. “These sectors are those which are primed to benefit the most from this shift, including consumer discretionary, consumer staples, health care, I.T., and healthcare. As China transitions towards a consumer-based economy, small and medium enterprises (SMEs) have sprung up to cater to these new and growing segments of the economy. The defining characteristic of these sectors is that their growth and profitability is primarily driven by consumer spending and habits (as opposed to government-directed spending and investment).”
CNXT ETF Credibility
CNXT tracks the SME-ChiNext 100 Index, a mix of mid- and small-cap stocks trading on mainland China. The fund reflects China’s new economy opportunities with a weight of 26.5% to the technology sector and a combined weight of 20.4% to consumer stocks.
“With China’s transition to a consumer-led growth economy, a new set of companies is primed to benefit,” said VanEck. “Fortunately for investors who are seeking to tailor their China exposure to benefit from these changes, there are many ways to access the opportunities in the onshore market, including ETFs that provide exposure to targeted segments of the economy.”
CNXT holds 100 stocks and charges 0.65% per year, or $65 on a $10,000 investment.
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