Exchange Traded Funds (ETFs)

ETF Talk: Unleashing the Dragon with This Chinese ETF

With the presidential election coming up in less than a week, investors, myself included, are keeping a close eye on the market.

While we as Americans have enough to worry about, seeing as the election could very well determine the fate of our country, the United States has the added pressure of being the world’s largest economy. What happens in a week could change everything, and not just here in the land of the free.

China, the second-largest economy in the world, is awaiting the result of the U.S. election. In addition to the previous stimulus the Chinese government provided to kick-start its economy while lowering interest rates, this week, China announced it was considering the issuance of $1.4 trillion in extra debt over the next few years. This would be in attempt to revive China’s weakened economy. In 2023, China’s gross domestic product (GDP) growth reached 5.2%, but the International Monetary Fund (IMF) expects it to be around 4.8% in 2024.

That is a big drop in GDP growth since China began to open its economy in 1978, when its GDP growth averaged more than 9% per year. However, the growth trend is slowing, reflecting adverse demographics, tepid productivity gains and rising constraints to a debt-fueled, investment-driven growth model, the World Bank reported. But opportunities now exist for investors who want to tap into China’s debt-spending infusion.

WisdomTree China ex-State-Owned Enterprises Fund (NASDAQ: CXSE) is an exchange-traded fund that gives investors access to Chinese companies that are not state-owned enterprises. For reference, state-owned enterprises are companies that have government ownership of greater than 20%.

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The investment seeks to track the price and yield performance, before fees and expenses, of the WisdomTree China ex-State-Owned Enterprises Index. The non-diversified index fund is a modified float-adjusted market cap weighted index that consists of common Chinese stocks. CXSE boasts a 17.76% year to date return rate. It also has $437.67 million in net assets and a dividend yield of 1.64%.

Chart courtesy of www.stockcharts.com.

Looking at the chart, we can see a clear spike right in the middle of September, which makes sense considering the rally that surrounded the stimulus efforts of the Chinese government. Now, the fund has fallen from its peak, but remains above its highs from the past year. And, with the chance of even more efforts to boost China from its economic struggles, Chinese stocks could move higher again.

The Top 10 holding in CXSE are TENCENT (0700.HK), Alibaba Group Holding Limited (9988.HK), Meituan (3690.HK), PDD Holdings Inc. (PDD), Contemporary Amperex Technology (300750.SZ), JD.com, Inc. (9618.HK), 02318 (02318), Ping An Insurance Company of China, Ltd. (601318.SS), NetEase, Inc. (9999.HK) and Baidu, Inc. (9888.HK). At 48.91% of total assets, the top 10 holdings make up just under half of the fund.

CXSE allows investors a chance to profit off some of China’s most successful companies with exposure to several different sectors.

China’s debt plan is expected to be further bolstered by its government if former President Donald Trump wins the Nov. 5 presidential election. He used tariffs against China while serving as president between January 20, 2017, and January 20, 2021, to counter what he described as unfair trade practices that hurt U.S. manufacturing and cost American jobs. Of course, tariffs also raise prices for the affected goods sold to U.S. consumers.

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Despite the slowdown in China’s economy, hope is far from lost. According to Forbes.com, China’s benchmark CSI 300 index has soared by a quarter from the middle of September 2024, after its leaders announced interest rate cuts and other measures to boost an economy whose growth has lagged its pre-pandemic pace.

What’s more? China’s stocks may be poised to climb again, even after gains from an immense rally in mid-September faded, according to Goldman Sachs.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Forecasts & Strategies, Tactical Trader, TNT Trader, Five Star Trader, Bullseye Stock Trader, and The Deep Woods. His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.