China’s stock market crash this summer has inspired the interest of bargain hunters and betters hoping for a rebound. “Deutsche X-trackers Harvest CSI 300 China A Share ETF (ASHR), tracking 300 companies listed in Shanghai or Shenzhen, fell 15 percent in the past three months. That cut its year-to-date gain to 8% and its one-year return to 63%, through August 4.”
The Emerging Markets Internet & Ecommerce ETF (EMQQ) founder, Kevin Carter, has been on a public relations mission recently. Carter is determined to convince investors that there are, “gems to be found in the rubble.” EMQQ holds a group of companies that are engaged in selling goods online, search engines, and other web-based services in developing markets. The ETF includes countries like Argentina, Brazil, China, India, Russia, South Korea, South Africa, and Taiwan. However, the majority of the portfolio is weighted with, “Chinese stocks, including American depository receipts (ADRs) of Alibaba (BABA), JD.com (JD), and Baidu (BIDU).”
EMQQ sold off 10 percent in the last three months, bringing its year to date return to 2.4 percent through August 4th. Despite all the volatility, EMQQ did perform its benchmark. In light of all the volatility, Carter explains why investors should consider coming back to China. When asked why people should invest in China’s internet and e-commerce companies after the recent crash of China’s stock market, Carter replied, “two reasons: growth and governance. China’s major e-commerce companies Alibaba, Tencent, JD.com, etc. are still growing revenue at about 40% and some smaller e-commerce names are growing even faster. These companies don’t trade in China. Most of them have been funded by U.S. institutional venture capital investors and trade largely on the NYSE or NASDAQ. They have to meet U.S. listing standards. The recent “bubble” and “crash” have been in the domestic China markets of Shanghai and Shenzhen, where so-called “A Shares” trade.”
Carter also compared this summer’s crash in China to the 2000 U.S. stock market crash and cautioned against reading too much into U.S. headlines that describe the Chinese governments attempts to efforts to control the fallout in the market as “heavy-handed and manipulative.” Carter states that, “I am very wary of the U.S. headlines painting the moves as heavy handed and manipulative. If you look at what our government did in our last bubble, it’s hard for us to throw stones at any government trying to stabilize their markets…these are very smart and well-educated people with long-term plans. Remember, the Chinese authorities made efforts to curb this speculation in the week before the decline started.”
Finally, Carter tells investors that the Chinese market is risky and volatile right now, “but opportunity can be found. You just need to know where to invest. Investors should know that the Chinese e-commerce companies listed in the U.S. are largely not included in the largest China ETFs. The indexes they track don’t include U.S.—listed Chinese companies. These are precisely the type of companies to invest in.”
If you have questions or concerns about how China’s market could impact your portfolio—for better or for worse—contact an advisor at Apex financial today. We can help you find good opportunities for your portfolio to protect, grow, and manage your wealth.