Take a fresh look at your lifestyle.

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

Hi! This week’s ETF Wrap funds looks at China-focused funds that are struggling in 2024, with Clocktower’s chief strategist Marko Papic providing his take on concerns tied to the country.

Please send feedback and tips to christine.idzelis@marketwatch.com or isabel.wang@marketwatch.com. You can also follow me on X at @cidzelis and find me on LinkedIn. Isabel Wang is at @Isabelxwang.

Sign up here for our weekly ETF Wrap.

It’s a dismal start to the year for several China-focused exchange-traded funds. 

Shares of the iShares MSCI China ETF MCHI, which has $5 billion of assets under management, have tumbled 9.7% this month through Wednesday, FactSet data show. Like other China ETFs, the fund is struggling after suffering losses in each of the past three years. 

Beijing’s financial work conference earlier this week sparked investor fears that a regulatory “crackdown” on the country’s financial sector is coming, said Marko Papic, chief strategist at Clocktower Group, in a phone interview. The concern is that the Chinese government will be “heavy-handed” in carrying out “significant regulatory activity” just as China is “in the middle of private-sector deleveraging,” said Papic.

“We’ve seen this picture before,” he said, citing the country’s crackdown in 2021 on technology companies. But this time, Papic fears a “double whammy,” explaining that regulatory action targeting the financial sector may hurt lending by banks, which are the “blood of the economy.”

The KraneShares CSI China Internet ETF KWEB, also with $5 billion of assets, has seen its shares plunge 11.8% this year through Wednesday, while the iShares China Large-Cap ETF FXI, which has $4 billion under management, has dropped 10.7% over the same period, according to FactSet data.

“Everybody is looking for a reason to buy Chinese stocks because they’re cheap,” said Papic. But the “constant throwing of regulatory sand in the gears,” he said, “makes it very difficult for us to tell our clients that there’s any fundamental reason to be bullish” on Chinese assets.

The iShares MSCI China ETF provides exposure to shares of large and midsize companies in China, while the iShares China Large-Cap ETF focuses on large-cap stocks in the country and the KraneShares CSI China Internet ETF tracks shares of Chinese internet companies listed overseas.

As for other ETFs that invest in Chinese companies, shares of the Invesco China Technology ETF CQQQ and Invesco Golden Dragon China ETF PGJ have each plummeted more than 13% this month through Wednesday, while the Xtrackers Harvest CSI 300 China A-Shares ETF ASHR dropped 7.5% over the same stretch, according to FactSet data. 

As usual, here’s your look at the top- and bottom-performing ETFs over the past week through Wednesday, according to FactSet data.

The good…

Top performers %Performance
AdvisorShares Pure US Cannabis MSOS 18.0
Sprott Uranium Miners ETF URNM 9.9
Global X Uranium ETF URA 6.3
United States Oil Fund LP USO 2.1
WisdomTree Japan Hedged Equity Fund DXJ 1.2
Source: FactSet data through Wednesday, Jan. 17. Start date Jan. 10. Excludes ETNs and leveraged products. Includes NYSE-, Nasdaq- and Cboe-traded ETFs of $500 million or greater

…and the bad

Bottom Performers %Performance
Invesco Solar ETF TAN -11.1
ARK Genomic Revolution ETF ARKG -10.3
First Trust Nasdaq Clean Edge Green Energy Index Fund QCLN -8.7
Amplify Transformational Data Sharing ETF BLOK -8.6
U.S. Global Jets ETF JETS -7.9
Source: FactSet data

New ETFs

  • Roundhill Investments said Thursday that it launched the first bitcoin covered call strategy ETF in the U.S., the Roundhill Bitcoin Covered Call Strategy ETF YBTC. The fund aims to provide investors exposure to an ETF investing in bitcoin futures contracts, while “potentially generating monthly options income,” according to the announcement. Investors’ exposure to bitcoin, which historically has seen “significant volatility,” would be subject to an “upside cap,” the firm said.
  • Calamos Investments announced Jan. 16 that it launched the Calamos CEF Income & Arbitrage ETF CCEF, an actively managed ETF that seeks to buy “distribution-producing closed-end funds to deliver high monthly income streams with capital appreciation potential.” 
  • F/m Investments said Jan. 17 that it launched U.S. Credit Series ETFs that track an investible index in investment-grade credit, including the F/m 2-Year Investment Grade Corporate Bond ETF ZTWO, F/m 3-Year Investment Grade Corporate Bond ETF ZTRE and F/m 10-Year Investment Grade Corporate Bond ETF ZTEN.

Weekly ETF reads

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More