Pummeled China ETFs jump after report Beijing may support ailing stock market

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Exchange-traded funds that target Chinese equites surged Tuesday as Beijing reportedly weighs a support package for its struggling stock market. 

Shares of the iShares MSCI China ETF
MCHI
closed 3.8% higher on Tuesday, while the KraneShares CSI China Internet ETF
KWEB
gained 4.9%, according to FactSet data. The ETFs, which each have around $5 billion of assets under management, have been hammered so far in 2024 after logging losses in each of the past three years. 

Chinese authorities are considering measures to rescue its ailing equities market that may include offshore money for a stabilization fund, according to a Bloomberg News report citing people familiar with the matter. Stocks in China have slumped amid worries over the country’s property woes, demographic challenges, disappointing growth and potential regulatory activity.

Beijing’s financial work conference recently sparked investor fears that a regulatory “crackdown” on China’s financial sector may be coming, Marko Papic, chief strategist at Clocktower Group, told MarketWatch in a phone interview last week.  

See: China-focused ETFs struggle amid fears of another regulatory ‘crackdown’

Meanwhile, investors have been digesting disappointing economic data from China.

“Chinese GDP grew 5.2% in the fourth quarter, below the market expectations of 5.3%,” a Clocktower note dated Jan. 17 says, while “December retail sales growth printed 7.4%, below the consensus estimates of 8%.”

Clocktower also cited China’s real-estate problems and rising worries over its demographics. 

“The ongoing property depreciation shows no signs of abating,” the firm’s note says. “In addition, the number of new births reached a new low in 2023, intensifying the concern over China’s demographic crisis over the long-term.”

Shares of other ETFs that invest in Chinese stocks remain in the red so far this year.

For example, even after their 4% jump on Tuesday, shares of the Invesco China Technology ETF
CQQQ
are down 13% this month, according to FactSet data. And shares of the Xtrackers Harvest CSI 300 China A-Shares ETF
ASHR
have shed around 5.7% year to date, despite their rise Tuesday. 

Meanwhile, shares of the KraneShares CSI China Internet ETF have slumped 10.2% so far this year, while the iShares MSCI China ETF and iShares China Large-Cap ETF
FXI
are each down around 8% year to date.

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