Time to Buy China ETFs Following Billionaire Investors?

Concerns over China’s economic challenges remain rife as the year 2024 reaches its final three months. In recent years, investing in Chinese stocks has proven extremely challenging for bullish investors. Government policies perceived as anti-growth, crackdown on several sectors, strict COVID-19 measures, weak GDP growth, high unemployment and a crisis in the real estate sector have contributed to a market lull.

The struggling real estate sector has posed the main challenge to China's economy. Evergrande, previously the top real estate company globally, fell apart during the crisis in the Chinese property market.

China ETFs Post Gains

Despite the prevalent downbeat sentiment, not everyone shares a gloomy outlook on China’s future. Ted Alexander, CIO of BML Funds, expressed optimism on CNBC’s “Street Signs Asia,” highlighting China’s potential for innovation, as quoted on CNBC. He believes that further economic downturns are unlikely.

Invesco Golden Dragon China ETF PGJ, KraneShares Hang Seng TECH Index ETF KTEC, Global X MSCI China Consumer Discretionary ETF CHIQ and iShares China Large-Cap ETF FXI have each gained more than 1% in the past month.

Wall Street's Contrasting Views on China Stocks

Some high-profile investors have maintained their confidence in China. Billionaire investors David Tepper and Michael Burry continue to hold significant positions in Chinese companies, per the CNBC article. Tepper, the founder of Appaloosa Management, still has Alibaba BABA as his top holding, despite slightly reducing his stake. Leveraged Alibaba ETF GraniteShares 2x Long BABA Daily ETF BABX has gained about 11% in the past month.

Tepper also boosted his investments in Zacks Rank #1 (Strong Buy) JD.com JD, KE Holdings and Chinese exchange-traded funds (ETFs), which now form a considerable portion of his portfolio. Similarly, Michael Burry, famous for his role in “The Big Short,” has made Alibaba his largest holding, along with investments in Baidu and JD.com. Direxion Daily FTSE China Bull 3X Shares YINN has added more than 1% in the past month. You can see the complete list of today’s Zacks #1 Rank stocks here.

On the other hand, there is also a cautious approach. Goldman Sachs has recently exited its long-term position in copper, reducing its price forecast for 2025 due to declining Chinese demand. Bank of America has also cut its 2024 growth forecast for China to 4.8%.

China: Mixed Economic Data But Signs of Rebound

China’s economic data presents a complex picture. While manufacturing and housing data have shown declines, there are signs of improvement in other areas. The Caixin Manufacturing PMI rose to 50.4 in August, indicating modest factory activity growth. Retail sales rose 2.7% in July, marking the 18th successive month of expansion. Moreover, China’s tourism sector experienced a significant surge this summer.

Strong Corporate Earnings for Chinese Firms

Despite macroeconomic concerns, some market experts see reasons for optimism. Eric Lin, head of Greater China Research at UBS, noted that Chinese companies have delivered strong earnings this year, which has supported the stock market, per CNBC. His team predicts a 10% upside for MSCI China by the end of 2024.

Cheaper Stock Valuations for China ETFs 

The ETFs like FXI and iShares MSCI China ETF MCHI trade at a P/E of 11.64X and 10.89X, respectively, much lower than the SPDR S&P 500 ETF Trust’s SPY P/E of 22.53X.

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