On a day that is shaping up to be dismal for U.S. stocks and less-than-cheery for most emerging markets exchange traded funds, ETFs holding Chinese A-shares are standing tall.
The S&P 500 is off 1.6% while the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) and the iShares China Large-Cap ETF (NYSEArca: FXI) are down 2% and 0.7%, respectively. However, A-shares ETFs are in the green. The db X-trackers Harvest CSI 300 China A-Shares Fund (NYSEArca: ASHR), the largest A-shares ETF, is higher by nearly 1% on volume that more than double the daily average.
ASHR’s sturdy Thursday showing comes a day after the ETF closed modestly higher despite a glum showing for U.S. stocks Wednesday. Block buyers were also seen in ASHR Wednesday. [PBOC Boosts China ETFs]
ASHR’s rivals, the Market Vectors ChinaAMC A-Share ETF (NYSEArca: PEK) and the KraneShares Bosera MSCI China ETF (NYSEArca: KBA), are getting on the fun as well. PEK is up half a percent on volume that is nearly 60% above the three-month daily average while KBA is leading the way with a 1% gain.
A-shares ETFs are rallying on some solid Chinese economic data points, but there is another important catalyst at play. In October, “mainland investors will be allowed to trade stocks in Hong Kong and vice versa, which means the discount gap between Shanghai and Hong Kong (Shanghai’s valuations are lower) will inevitably close, giving Shanghai shares a boost,” reports Shuli Ren for Barron’s.
That coupled with compelling valuations have been among the sparks that have ignited fires under the aforementioned ETFs. The CSI 300 Index, which tracks stocks listed on the Shanghai and Shenzhen exchanges, trades at a price-to-earnings ratio of less than 10, the lowest in over a decade, while Chinese shares listed on the Hong Kong exchanges trade at over 12 times earnings. A-shares are trading at their largest discount to H-shares in five-years. [A-shares ETFs Earn A’s]