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China ETFs rallied more than 3% on Wednesday on hopes this battered market can finally get turned around and lead the global economy. The new Chinese leader, Xi Jinping, is trying to instill confidence in the world's second-largest economy.

Chinese equities on Wednesday rose the most in three months, Bloomberg Businessweek reported.

"China shares soared Wednesday after hovering near four-year lows, because of hopes for more economic stimulus policies, including added construction of subsidized housing and other public works, following a meeting of the country's new top leaders," WSJ.com reported. "However, market analysts said it was unclear if the day's gains marked a turning point for the Chinese stock market, which has been one of the world's worst performing markets despite robust economic growth. The investing public has largely abandoned the market, which is on track for its third consecutive year of declines."

Recent economic reform in China has helped to get the economy back on track for a new phase of growth. Exchange traded funds offer diversified exposure to Chinese equities with one trade and low costs.

"Valuations are attractive and fears of a major slowdown in China seem to be waning, while China still promises growth faster than the rest of the world," Paul Gillis, professor at Peking University's Guanghua School of Management, said in a report.

Billions of dollars have flowed back into China's equity market and focused funds over the past two months, reports Vikram Subhedar for Reuters. Analysts remain clear that risk factors within the economy are evident, but the attitudes of foreign investors show confidence in the emerging economy. A recent Bank of America Merrill Lynch study found that sentiment regarding China's economy is at a three-year high.

Fundamentals within China's economy such as slow earnings, growing corporate debt and loss of interest by local retail investors are problems that have not weighed upon the rapid growth and expansion. Plus, other problems such as fraud, variable interest entities and regulatory disagreements with the U.S. are not going to be solved anytime soon.

"Five years back in 2007 the (Chinese) market was one of the most expensive and now it's cheap on a par with Korea -- it's one of the cheapest markets in Asia," Pacific Basin's Rae said. "There is lots of stuff that's cheap -- some has recovery potential but then some is cheap for a reason."

Recent economic data still create a solid case for investing in China. The Chinese Purchasing Managers Index just moved above 50 for the first time since October 2011. Readings above 50 on this closely followed index indicate economic expansion and below 50 are reflective of contraction, reports Dave Goodboy for Street Authority. In addition, year-over-year industrial company profits surged more than 20% in October. This is a huge increase when compared to September's 7.8% gain.

Furthermore, China is attempting to formalize private lending, which would disburse capital back into the local markets in a controlled and regulated style. Financial reform is a hot topic in China, and once the underground lending and black market financial deals ease, markets should be able to make a lasting recovery.

ETFs such as the iShares MSCI Hong Kong Index (NYSEARCA:EWH) can help mitigate any risk that lies ahead for Chinese markets. The ETF focuses on banks, utilities and property companies. The market-cap weighted approach to the fund allows for higher allocations to established large-cap companies. The largest China-focused fund, iShares FTSE China 25 Index (NYSEARCA:FXI) outperformed the S&P 500 Index by 0.5% in the month of November.

Everyone is negative on Chinese stocks and the bears are exhausted, says noted technical analyst Tom DeMark. "And now is the perfect environment to make a low and be positive as the last seller, figuratively speaking, has sold," he told Bloomberg.

iShares FTSE China 25 Index

(click image to enlarge)

Tisha Guerrero contributed to this article.

Source: ETFs To Access China's New Growth Phase