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How Cheap are Chinese Stocks Now?

Nov 02, 2018

 

  • Today, we compare the share price of three significant Chinese ETFs with the prices of three relevant US ETFs over the last 10 years, as seen in the three charts below:
     
  • Our first chart compares historical share price levels of the iShares China Large-Cap ETF (FXI), which tracks Chinese H-Share stocks, to the historical share price of the SPDR S&P 500 ETF Trust (SPY), which tracks the S&P 500. 
     
  • In the second chart, we analyze the price relationship between the iShares MSCI China ETF (MCHI), which tracks an index of general Chinese stocks, with the SPDR S&P 500 ETF Trust (SPY), which tracks the S&P 500.  
     
  • In the third and final chart, we specifically look at technology and compare historical price levels of the Invesco China Technology ETF (CQQ), which tracks investable Chinese technology companies, with historical price levels of the Invesco PowerShares QQQ Trust, Series 1 (QQQ), which tracks the top 100 NASDAQ listed stocks.
     
  •  Escalating trade tensions between the US and China in 2017 and 2018 along with deaccelerating economic growth have driven Chinese stocks to trade at or near historical lows. 
     
  • The FXI is trading near its cheapest price multiple to the SPY in the last 10 years. At peak levels in late 2009, the FXI's share price traded as high as 0.43x the share price of the SPY. Today, FXI shares trade at a price multiple of 0.15x SPY share, just off 10-year lows set on September 14th, 2018 of 0.14. 
     
  • MCHI shares traded at 0.19x the price of  SPY shares on December 12th, 2016, its cheapest price multiple in 10 years. Today, MCHI shares are trading just off 10-year lows at 0.21x the share price of the SPY.  
     
  • CQQQ shares are trading just off the cheapest price multiple to QQQ shares seen in 10 years. On October 26th, 2018, CQQQ shares were priced at 0.24x the QQQ shares while today, CQQQ shares are trading 0.26x the price of QQQ shares. CQQQ has seen its share price multiple to the QQQ nearly cut in half in 2018 as tech companies have been among the hardest hit Chinese stocks from the trade war.
     
  • Today, US President Trump put a bid into Chinese and Hong Kong stocks after he reportedly instructed US trade officials to begin drafting a potential trade agreement after a phone call with Chinese President Xi Jinping.  
     
  • With Chinese and Hong Kong stocks trading at or near their lowest 10-year price multiples relative to their US counterparts, investors may want to consider increasing exposure to Chinese markets. Chinese stocks stand to benefit from a resolution to US-China trade conflict, and US President Trump’s actions today may be a step in that direction.
     

 

iShares China Large-Cap ETF (FXI) Price vs. SPDR S&P 500 ETF Trust (SPY) Price over 10 Years

 

iShares MSCI China ETF (MCHI) Price vs. SPDR S&P 500 ETF Trust (SPY) Price over 8 Years

 

Invesco China Technology ETF (CQQQ) Price vs. Invesco PowerShares QQQ Trust, Series 1 (QQQ) Price over 9 Years

Source: Bloomberg, all charts