Last Wednesday (25 September), I added to my exposure to China. This followed the announcement earlier in the week of large scale stimulus from Chinese policymakers to try and help the economy get back to an area of growth. Given that last week the CSI 300 posted it’s best weekly gain since 2008, the stock market reaction was clearly very positive. Here’s how I’m trying to get access to this rally.
Why I think now is a good time
Firstly, let’s run through why I wanted to get exposure to China. The Chinese stock market has been falling for some time due to investor concern about the slowing growth in the country. This has been particularly pronounced in the manufacturing and property sectors. When I look at the fall in the price of commodities such as oil this year, part of the blame can be firmly laid at China’s door.
Before the rally last week, the CSI 300 (the main Chinese market index) was down 13% over the past year. This might not sound like a huge fall. But think about the contrast to most other major economies and the performance of the stock market in those lands. For example, here in the UK the FTSE 100 is up 11% over the same period. Amd I wouldn’t even say our economy has done that well!
But the fact that I thought Chinese stocks could be undervalued was only partly the reason why I wanted to get involved. The other factor was the announcement last week of stimulus to support the economy. This included cuts to different interest rates, along with measures such as reducing the downpayment required to purchase a second home. This also included language that indicated more support could come if needed.
I think China is finally getting serious on providing help to get the economy firing again. So the mix of cheap stocks along with this short-term spark got me really interested.
Index exposure
I do already have some indirect exposure to China, through UK and US stocks that trade or manufacture over there. However, I wanted to get more direct access.
To this end, I recently purchased the MSCI China A ETF (NYSEMKT:CNYA). The exchange traded fund (ETF) is up 6% over the past year. Even though I know I sometimes bash index trackers, in this case I think it’s the best option. The ETF is composed of domestic Chinese equities that trade on the Shanghai or Shenzhen Stock Exchange. So this gives me a real finger on the pulse of the companies in China.
I don’t have the expertise to pick particular Chinese stocks. So having a diversified range of ideas included in the ETF helps. Further, I think the stimulus impact will support almost all sectors. I don’t see it as isolated aid for just one area. Therefore, owning an ETF of the entire index shouldn’t see me underperform.
As a risk, it might be that this positive momentum fades quickly if investors don’t see economic data improving. This could cause investors to stick to more traditional stocks and geographies instead of considering China.
But overall I feel this is a great way to give me exposure to China while I can happily research then buy individual stocks on the UK or US markets.
