A Dozen Ways To Cash In On China

China’s stocks have turned around. From the start of 2010 through 2016, SPDR S&P China (symbol GXC), a popular exchange-traded fund, returned an annual average of a little more than 2%. So far in 2017, the fund has returned 42.7%, about three times as much as the U.S. market. (Prices and returns are as of September 29.)

- James K. Glassman

China’s sparkling performance comes despite having been a prime target of President Trump, who has criticized China’s trade practices and its $347 billion surplus with the U.S., China’s largest export market. Chinese stocks began their dramatic rise late last year, shortly after Trump was elected. Investors must believe either that the Trump administration will not erect trade barriers or that the action won’t have much effect.

Or maybe the Chinese stock market is simply playing catch-up. Investors were spooked when China’s economy began to decline in 2011 from a doubledigit annual growth rate to between 6% and 7% now. They worried that domestic unrest would increase if the economy faltered and failed to absorb enough new workers. But unemployment is just 4%, and according to the Economist, China will grow 6.8% this year—the second-fastest rate (after India) among the 57 countries the magazine tracks. Next year’s projection for China, 6.5%, puts the country again at number two. Inflation is under control at less than 2%.

Still, pessimism about Chinese economics and politics troubles investors, and so do a lack of transparency and a surfeit of government intervention, both in the economy (especially banking) and in financial markets. In June, index provider MSCI announced that starting next summer it would include mainland China stocks in its regional, global and sector indexes, which determine the composition of popular exchange-traded funds such as iShares MSCI Emerging Markets (EEM). But as evidence of its concern about the integrity of China’s markets, MSCI is moving warily, including only the largest and most liquid mainland stocks and weighting them at just 5% of their market capitalization (shares outstanding times price) rather than 100%.

Economic powerhouse.