ETFs in Focus on Chinese Stocks' First Yearly Gain After 3-Year Fall

Chinese stocks recorded their first annual gain in 2024, following a challenging three-year decline. But despite a dip on the final trading day, market optimism for policy support helped Hong Kong shares finish the year on a high note. iShares China Large-Cap ETF FXI was up more than 30% on 2024.

Strong Performance of the CSI 300 and Shanghai Composite Index

The blue-chip CSI 300 index, which tracks the largest companies in Shanghai and Shenzhen, witnessed a year-over-year 14.7% rise this year, breaking a losing streak that started in 2021. This rebound came after the COVID-19 pandemic, struggles in the property sector, and weak consumer confidence caused declines in previous years. Similarly, the Shanghai Composite Index gained 12.8% in 2024, ending its two-year slump.

Bold Measures to Stabilize the Economy

Chinese stocks started their historic rally from September, as government stimulus measures brought investors back to one of the world’s most beaten-down markets. Chinese authorities have implemented some of the most significant economic measures in recent years, including interest rate cuts, home purchase incentives, and capital market funding schemes.

These steps were designed to stabilize the struggling economy and restore domestic confidence, with the capital market seen as stabilizing. In September 2024, PBOC governor Pan Gongsheng introduced a reduction in a key short-term interest rate and revealed plans to slash the reserve requirement ratio (RRR) for banks to its lowest level since 2018. Notably, this was the first time since at least 2015 that reductions to both rates were announced on the same day (read: A Few Reasons to Buy China ETFs Now).

The central bank also introduced a series of other policies, including measures to support China’s struggling property sector. These include lowering borrowing costs on up to $5.3 trillion in mortgages and relaxing rules on second-home purchases. Pan also committed to providing at least 800 billion yuan ($113 billion) in liquidity support to China’s stock market.

Banking & Chip Sectors Lead Market Gains

The banking sector, with a 34.7% gain, led the onshore market’s performance in 2024. The four largest state banks reached multi-year highs, while the semiconductor sector jumped 53.9%, driven by increased domestic investments amid tightening U.S. chip restrictions.

China's 2024 GDP Growth to Reach 5%

China’s gross domestic product is expected to expand around 5% for the full year of 2024, per President Xi Jinping (per Business Standard). This means the world’s second-largest economy is on track to meet its official target. A precise figure is not yet available. Economists surveyed by Bloomberg estimate 4.5% growth in 2025, as quoted on Business Standard.

Winning China ETFs in Focus

Against the above-mentioned backdrop, we have highlighted a few winning China ETFs of 2024. The winning ETFs include FXI, Franklin FTSE China ETF FLCH (up about 20%), KraneShares Hang Seng TECH Index ETF KTEC (up about 19.5%) and iShares MSCI China ETF MCHI (up about 19.3%).

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