Smaller Chinese company stocks and related A-shares exchange traded funds are leading China’s markets this year as large-caps cool off.
Year-to-date, the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (NYSEArca: ASHR) dipped 4.6%. In contrast, the Deutsche X-trackers Harvest CSI 500 China A-Shares Small Cap Fund (NYSEArca: ASHS) rose 11.0% and Market Vectors ChinaAMC SME-ChiNext ETF (NYSEArca: CNXT) jumped 20.7% so far this year.
ASHS tracks the CSI 500 Index of Shanghai- and Shenzhen-listed small-caps. CNXT follows the SME-ChiNext 100, which provides exposure to the 100 most liquid mid- and small-cap stocks that trade on the Small and Medium Enterprise (SME) Board and the ChiNext Board of the Shenzhen Stock Exchange (SZSE).
While both ETFs may seem like they track small-cap Chinese stocks, both actually include heavy exposure in mid- and large-sized companies. According to Morningstar data, ASHS includes 81.1% mid-caps and 18.6% large-caps, and CNXT includes 27.8% mid-caps and 66.7% large-caps. In contrast, ASHR leans toward larger state-run companies, including 48.3% mega-caps and 49.5% large-caps.
Due to their smaller market-cap, ASHS and CNXT both include smaller sector weights toward the financial sector, which has recently lagged the broader market. Specifically, ASHS’s top holdings include industrials 27.0%, financials 19.9%, materials 17.3%, energy 12.5% and consumer staples. CNXT’s top sectors include information technology 30.7%, industrials 16.7%, consumer discretionary 16.2%, health care 14.2% and materials 8.3%. In contrast, ASHR has a heavy 44.8% position in financials. [A-Shares ETFs Demand More Attention]
However, large-cap A-shares were finally moving Thursday, following the week-long lunar new-year hiatus, advancing on speculation the government will expand fiscal spending and the central bank could increase monetary easing to stimulate the economy, reports Kyoungwah Kim for Bloomberg.
“There’s chatter about more stimulus,” Yen Chiu, a trader at Shenwan Hongyuan Group Co, said in the article. “China is a policy-driven market. A shares are finally waking up after the Lunar New Year holidays.”