FXI: The best vehicle for overseas investors to access China's market

The FXI index is an interesting ETF that tracks large Chinese companies listed in Hong Kong within the FTSE A50 index.

Over the past year, despite the volatility of "China-specific valuation" for large Chinese companies listed in Hong Kong, the ETF's value remained relatively high around April 2023. However, starting in the second half of 2023, as the domestic economy fell short of market expectations, large red-chip stocks listed in Hong Kong also faced valuation pressure.

As a result, both the FTSE A50 and FXI have been under significant pressure.

This pressure peaked around late January 2024.

However, at that time, FXI saw a surge in call option trading volume, reflecting some market confidence in the recovery of the domestic market.

Recently, many large red-chip stocks and domestic listed companies have released their 2023 performance reports. Overall, most companies maintained stable performance, though some, like China Everbright Bank, missed expectations. Generally, large domestic companies remained steady.

In reality, the valuation of domestic companies in the Hong Kong market is not particularly favorable, with many companies experiencing significant price gaps. Even companies like China Shenhua, which have strong moats and high dividends, have not gained much favor from Hong Kong investors.

Returning to FXI, its value has always been supported by the high liquidity and stability of its underlying assets, along with the ability to provide steady cash flow through dividends.

On the other hand, companies in the A50 index are often influenced by changes in domestic economic policies.

Given the current domestic economic situation, the real estate sector may need to fend for itself, but the bottom line is to avoid systemic financial risks. Meanwhile, industries like electric vehicles, which are large enough, are likely to become new focal points for national support.

These globally competitive tech industries bear the mission of overtaking competitors in the industry.

Recently, FXI has been strengthening as the domestic economy recovers. In the short term, there may be some risks of a pullback, but in the medium to long term, the upward trend remains the general direction.

$iShares China Large Cap(FXI.US)