To The Moon

After the U.S. imposed tariffs in April 2025, tensions rose between the U.S. and China. However, Chinese stocks remained strong, buoyed by economic stimulus efforts from Beijing such as interest rate reductions and incentives for the housing market.

Although some Chinese companies are listed on U.S. exchanges, most are traded in mainland China and Hong Kong, which may restrict access for international investors. Exchange-traded funds (ETFs) offer a practical and economical way for those interested in investing in Chinese stocks.

Takeaways:

● China ETFs provide exposure to the world's second-largest economy and stock market.

● Key Chinese indexes include the large-cap FTSE China 50 Index and the broad-based MSCI China Index.

● Chinese stocks historically have traded at lower price-to-earnings (P/E) ratios.

1. What are China ETFs?

China ETFs are investment funds that track Chinese company stocks, offering exposure to China's potential growth story. These funds aim to replicate specific indexes or stock baskets representing segments of China's market.

Chinese stocks generally fall into two categories:

a. Onshore-listed stocks (mainland China):

● Primarily A-shares traded in Shanghai or Shenzhen

● Quoted in Chinese yuan (RMB)

● Often represent "old economy" sectors like financials and industrials

● Dominated by many large-cap state-owned enterprises (SOEs)

b. Offshore-listed stocks (Hong Kong and U.S.):

● Historically more accessible to foreign investors

● Quoted in Hong Kong dollar (HKD) or U.S. dollar (USD)

● Often represent "new economy" sectors like consumer goods and technology

● Dominated by some well-known tech companies with global presence

To explore China ETFs on moomoo, navigate to Markets> ETFs> Heat Map > Region > China.

2. Understanding the key Chinese indexes

When considering China ETFs, it's important to understand the underlying indexes they track. Each of the major Chinese indexes has its unique features.

FTSE China 50 Index

This large-cap index includes 50 of the largest and most liquid Chinese stocks listed on the Hong Kong Stock Exchange. Notable constituents may include prominent companies such as Tencent, Alibaba, Meituan, and Xiaomi.

MSCI China Index

This broad-based index offers extensive exposure to large and mid-cap Chinese stocks listed globally. With over 500 constituents, the index aims to cover approximately 85% of the Chinese equity market. Some investors view it as a potential core holding for diversified exposure to China.

CSI Overseas China Internet Index

This sector-specific index focuses on China's emerging internet sector. It includes dozens of Hong Kong and U.S. listed Chinese companies that focus primary on internet and internet-related technologies.

CSI 300 Index

As a pure A-shares index, it consists of the 300 largest and most liquid A-shares listed on the mainland Shanghai and Shenzhen stock exchanges. Some consider it a benchmark for mainland Chinese stocks, drawing comparisons to the S&P 500 Index in the U.S.

3. Why consider investing in China ETFs?

While China faces certain economic challenges, including deflationary pressures, a rocky real estate sector, and a potential trade war, some global investors may consider diversifying their portfolios with China ETFs for the following reasons:

Strong market presence

As the world's second-largest economy and stock market, China has shown impressive economic growth, with an official GDP increase of 5.2% in 2023 and 5.0% in 2024. These figures are strong compared to many other major economies. However, Chinese stocks make up only about 3% of the MSCI All Country World Index, indicating potential underrepresentation in global portfolios.

Economic opportunities

China is striving to shift towards more consumer-led growth, which may present investment opportunities in key market segments. This ongoing structural change is supported by the country's large market scale and government policies, though outcomes remain to be seen.

Technological advancements

China has made significant strides in innovation and technology. Chinese companies have gained prominence in sectors such as e-commerce, gaming, electric vehicle (EV), and artificial intelligence (AI), potentially offering exposure to these growing industries.

Relatively low valuation

Historically, Chinese stocks have often traded at a discount compared to other regions. As of April 30, 2025, the MSCI China Index, covering over 500 Chinese stocks, traded at approximately 12.80x trailing and 10.82x forward price-to-earnings (P/E) ratios. In contrast, the S&P 500 Index traded at 27.99x trailing and 20.63x forward P/E.

It's worth noting that investing in China ETFs carries certain risks, including lack of financial transparency and issues related to potential de-listing of Chinese companies' American depositary receipts (ADRs) from US exchanges.

Bottom line

China's economic outlook presents a mix of challenges and opportunities, positioning China ETFs as a potential "dark horse" in global markets. Investing in China ETFs carries risks, including market volatility, regulatory changes, and geopolitical factors.