What You Need To Know About China's Stock Market In 2017 – Forbes

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China’s stock market on fire in the year of the rooster. China region funds rallied 13% year to date , through April 16, according to Morningstar. It was a welcome rebound after a lackluster 2016 when they lost 2%.

China funds have far surpassed the U.S. and global markets, which gained 4.5% and 6.7%, respectively year to date. The flagship China ETF, iShares China Large-Cap ETF, surged 10% year to date. Guggenheim China Real Estate ETF outpaced all of its peers, rallying a stunning 24% year to date.

Longer term, China region funds returned 4.9% and 5.6% annualized the past three and five years, according to Morningstar. By contrast, world equity funds gained 4.6% and 8.7% over the same periods.

Here’s what you need to know about China’s stock market in 2017.

A plastic bag with folded lucky money hangs on a chair before an electronic board showing stock information at a brokerage house in Shanghai on March 16, 2017. Burning paper or lucky money is a Chinese tradition to appease the spirits of the ancestors. (JOHANNES EISELE/AFP/Getty Images)

China ETF Returns Versus Major Global and U.S. Benchmarks

Name Ticker

Total

Return

2016

% Total

Return

YTD

%

Total Return

12 Month

%

Total Return

3 Year

%

Total Return

10 Year

%

Total Return

5 Year

$milFund Size

Total Assets

iShares China Large-Cap FXI 1.08 10.23 12.37 4.71 2.63 3.27 3,095.06
iShares MSCI China MCHI -0.32 14.27 15.24 5.17 4.77 2,200.40
SPDR® S&P China ETF GXC 0.11 14.32 16.09 6.32 5.74 5.87 827.71
Deutsche X-trackers Harvest CSI300 CHN A ASHR -15.59 8.32 1.56 12.97 409
PowerShares Golden Dragon China ETF PGJ -11.43 18.26 8.93 6.73 5.83 10.88 145.22
VanEck Vectors ChinaAMC CSI 300 ETF PEK -15.24 7.38 1.41 12.53 3.88 91.67
Guggenheim China Small Cap ETF HAO -4.61 12.16 9.94 2.59 5.16 88.5
Guggenheim China Real Estate ETF TAO 0.81 23.99 25.64 9.78 9.46 37.94
Deutsche X-trackers HrvstCSI500CHN A SC ASHS -22.12 7.78 -3.81 22.73
CSOP FTSE China A50 ETF AFTY -7.92 6.72 6.98 5.63
SPDR® S&P 500 ETF SPY 12 4.47 14.1 10.84 7.02 13.45 230,449.56
iShares MSCI EAFE EFA 1.37 6.69 9.04 0.57 0.51 6.52 67,259.00
Vanguard FTSE Emerging Markets ETF VWO 12.21 11.29 14.87 1.42 2.16 1.34 52,014.30
Source: Morningstar, Data as of April 16, 2017

Fire-Sale Valuations

Investors are perhaps flying the coop from overvalued U.S. and developed markets to take advantage of fire-sale valuations. China trades at a steep discount based on its historical market capitalization to gross domestic product ratio. China’s total stock market cap to GDP is 46%, as of April 16, versus a historical high of 662% and a historical low of 41%, according to Guru Focus. Guru Focus projects a 16% annual return if the market cap-to-GDP ratio reverts its historical mean of 152%. It forecasts a 30% annual return in the coming years when factoring in economic growth, dividend yield and mean reversion.

China Ratio of Total Market Cap over GDP (%)

GuruFocus.com

China Ratio of Total Market Cap over GDP (%)

Even after this year’s whopping rally, Chinese stocks are trading at a discount to both developed markets and emerging markets. iShares China Large-Cap ETF is trading at a price-to-earnings ratio of 10, price-to-book value of 1 while yielding 2.4%, according to data from Morningstar. By contrast developed markets, as tracked by iShares MSCI EAFE ETF, is at trading at 18 times earnings, 1.6 times book with a 2.9% yield. Emerging markets, as tracked by Vanguard FTSE Emerging Markets ETF, have a P/E ratio of 14.4, P/B of 1.5 and 2.3% yield.