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Asian equity markets, particularly in China, have experienced strong growth in 2025. The iShares China Large-Cap ETF (FXI) exemplifies this trend, delivering a year-to-date return of over 26%.
Consequently, investors have reduced allocations to U.S. equities, seeking opportunities in more dynamic markets.
FXI vs. VOO
China’s equity outperformance contrasts with the U.S. stock market, which has faced challenges such as stagflation concerns, escalating trade tensions and debates over the end of U.S. exceptionalism. The newly crowned biggest ETF in the world, the U.S. stock market benchmark Vanguard S&P 500 Index ETF (VOO), is down more than 4% this year.
Thus, the FXI vs. VOO return differential is 30%, which marks a stark contrast.
Contributing to FXI's performance are its top holdings, including tech giants Alibaba Group (BABA) and Tencent Holdings (TCEHY). Alibaba's shares have surged 70% this year, driven by robust earnings and advancements in artificial intelligence.
Similarly, Tencent has gained 30%, reflecting the broader strength of Chinese technology companies.
While the sustainability of China’s stock resurgence is uncertain, the emerging market’s momentum may continue as long as fears of stagflation and a prolonged trade war remain in the minds of investors.
What is the FXI ETF?
FXI is designed to track the performance of the FTSE China 50 Index, comprising 50 of the largest Chinese companies listed on the Hong Kong Stock Exchange. This ETF offers investors exposure to a diversified portfolio of large-cap Chinese firms across various sectors, including technology, financials and telecommunications.
By investing in FXI, individuals can gain access to China's economic growth without the complexities of purchasing individual stocks in foreign markets. As of March 17, 2025, FXI's assets under management were a healthy $8.2 billion, and its expense ratio was 0.74%, which is on the high side but typical of other emerging markets funds.
Weighing China ETF Benefits and Risks
Investing in China-focused ETFs like FXI presents several advantages. These funds provide diversified exposure to one of the world's fastest-growing economies, allowing investors to capitalize on sectors experiencing rapid expansion, such as technology and consumer goods. Additionally, China's government has implemented policies to stimulate domestic consumption and support key industries, potentially benefiting companies within these ETFs.
However, there are inherent risks, including regulatory uncertainties, geopolitical tensions and differences in corporate governance standards. Moreover, currency fluctuations and potential trade conflicts can introduce volatility to these investments.