Key Takeaways
- Chinese stocks fell after U.S. President Trump reiterated his plan of imposing 10% tariffs on Chinese goods.
- The MSCI China Index rose 0.7% on Tuesday, after the lack of immediate action from the Trump Administration.
- These Chinese-focused ETFs all up more than 19% in a year: FLCH, KTEC and MCHI.
Chinese stocks fell after U.S. President Donald Trump reiterated his consideration of imposing 10% tariffs on Chinese goods. The benchmark CSI 300 Index recorded its first decline in five days, driven by concerns over Trump’s remarks linking the tariffs to China’s role in sending fentanyl to Mexico and Canada, as quoted on Yahoo Finance on Jan. 22, 2025.
Market Reaction to Tariff Uncertainty
Trump’s mention of a potential 10% tariff next month was less severe than the 60% levy he had pledged during his election campaign. However, the uncertainty surrounding his tariff plans unsettled investors (read: ETFs in Focus on Chinese Stocks' First Yearly Gain After 3-Year Fall).
“It only gets tougher from here,” said Xin-Yao Ng, an investment director at abrdn Plc in Singapore. “The first day may have given some the false impression that Trump might not act. Gradual tariffs could delay or weaken the stimulus markets are hoping for,” as quoted on Yahoo Finance.
Relief Followed by Renewed Concerns
On Monday, the first day of Trump’s new term, he refrained from imposing new China-specific tariffs, prompting relief among investors. The MSCI China Index rose 0.7% on Tuesday, following this absence of immediate action.
However, Trump has indicated that tariffs on Canada and Mexico will rise to 25% by Feb. 1, 2025, keeping markets wary of his trade policies. Investors remain uncertain about whether the 10% tariff Trump flagged would be an addition to the previously threatened 60% levy.
Will All be Bad?
Investors should note that after wrangling for almost two years in the first term of President Trump, the United States and China had decided to strike a preliminary trade deal. We may see similar events this time around as well.
Monetary policy could also be easing in China as the government seeks to boost growth. Chinese stocks started their historic rally from September 2024, as government stimulus measures brought investors back to one of the world’s most beaten-down markets.
Chinese authorities have implemented some of the most significant economic measures in recent years, including interest rate cuts, home purchase incentives, and capital market funding schemes. The central bank also introduced a series of other policies, including measures to support China’s struggling property sector.
On Jan. 23, 2025, China’s financial regulators called on major state-owned mutual funds and insurers to increase their stock purchases in an effort to support the struggling stock market.
China's 2024 GDP Growth Reached 5%
China’s economy expanded by 5.4% in the fourth quarter, exceeding the market’s expectation, as a flurry of stimulus measures powered the economy to meet Beijing’s growth target. That last-quarter print helped lift China’s full-year GDP growth to 5.0% in 2024, in line with the official target of “around 5%.”
Winning China ETFs in Focus
Against the above-mentioned backdrop, we have highlighted a few winning China-based exchange-traded funds (ETFs) of 2024. The winning ETFs include FXI, Franklin FTSE China ETF FLCH (up about 20%), KraneShares Hang Seng TECH Index ETF KTEC (up about 19.5%) and iShares MSCI China ETF MCHI (up about 19.3%). These ETFs should be tracked closely as and when more updates related to Trump tariffs and the Chinese policy easing hit markets.
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KraneShares Hang Seng TECH Index ETF (KTEC): ETF Research Reports
iShares MSCI China ETF (MCHI): ETF Research Reports
Franklin FTSE China ETF (FLCH): ETF Research Reports
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
