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Market Overview

Time For Trade Talks, Time For This ETF

Time For Trade Talks, Time For This ETF

The notion that trade tensions between the United States and China, the world's two largest economies, are poised to cool is one of the reasons why Chinese stocks are emerging markets leaders this year.

Same goes for China exchange traded funds. The WisdomTree ICBCCS S&P China 500 Fund (NYSE: WCHN) is up 25.69 percent year-to-date.

What Happened

WCHN tracks the S&P China 500 Index, the China equivalent of the S&P 500, giving the ETF a larger roster than many older, rival China ETFs. While WCHN is already surging this year, the fund is worth considering ahead of the June G20 summit. WCHN's underlying index is outperforming some widely followed China benchmarks this year.

“Unfortunately, if investors gained exposure via the FTSE China 50 Index, their returns would only be about half as much as 2019’s top performer, the S&P China 500 Index,” said WisdomTree in a recent note. “The considerable underperformance of the MSCI China Index to start the year also leaves much to be desired.”

Why It's Important

A case can be made that WCHN is more representative of the gargantuan Chinese economy. As its name implies, the fund is home to nearly 500 stocks compared to just 50 in the FTSE China 50 Index and far more than the 310 found in the MSCI China Index.

The FTSE China 50 Index remains dominated by financial services stocks to the tune of more than 46 percent of its weight. WCHN allocates a quarter of its weight to that sector, but its combined weight of over 34 percent to the consumer discretionary, communication services and technology sectors exceeds the roughly 28 percent the FTSE China 50 Index allocates to those groups.

“Most investors targeting beta exposure to China are unlikely to have a strong view on individual sectors,” said WisdomTree. “Like the S&P 500 in the U.S., the S&P China 500 Index offers comprehensive exposure to all areas of the Chinese economy without making oversized bets on particular sectors.”

What's Next

Given the heft of the U.S. and Chinese economies, the importance of thawing long-running trade tensions can't be understated.

“As the two largest economies in the world, the U.S. and China, and their relations with each other, dictate the tone for global markets,” said WisdomTree. “While the U.S. has been a leader in global capital markets for nearly a decade, China’s rise is still in its infancy.”

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