Rallies for exchange trade funds holding Chinese equities continue to gain momentum thanks to another batch of impressive showings on Monday.
While the S&P 500 recovered a bit from last week’s drubbing to gain 0.72% on the day, Monday brought an array of even better showings from the marquee China ETFs. The iShares China Large-Cap ETF (NYSEArca: FXI), the largest China ETF, gained 0.86% while the db X-trackers Harvest CSI 300 China A-Shares Fund (NYSEArca: ASHR) extended its bullishness.
ASHR, the largest A-shares ETF in the U.S., jumped almost 2% on volume that was 61% above the daily average. That extends a run that has seen ASHR be the best traditional long ETF over the past month. The only exchange traded products that have outpaced ASHR over the past month are volatility ETNs and the iPath Dow Jones-UBS Coffee Total Return Sub-Index ETN (NYSEArca: JO). [A-Shares ETFs Shine as U.S. Stocks Falter]
Solid Chinese data points continue to provide upside for China ETFs.
“A 7.5 percent real economic growth rate may appear to be a mediocre performance for the most populated country on the planet by comparison with its rapid 9.5 annual percent pace of advance since 1978. However, the current speed at which the Chinese economy is growing is remarkable considering the six percent velocity, recorded in the fourth quarter of 1999, marked the nation’s slowest rate of increase in aggregate output during the last twenty years. Moreover, real economic activity – having trended in a 7.4 to 7.9 percent range since the first quarter of 2012 – remains the envy of most economies around the world even though it has not manifested much upside momentum of late,” said S&P Capital IQ in a recent research note.
The research firm has a marketweight rating on FXI, noting the ETF’s tight bid/ask spread of a mere penny. FXI’s liquidity, including that tight bid/ask spread, is one reason why the fund is so revered among traders. However, as has been recently highlighted, FXI leaves something to be desired when measured against rival China ETFs such as the iShares MSCI China ETF (NYSEArca: MCHI) and the SPDR S&P China ETF (NYSEArca: GXC). [Bigger Not Best for This China ETF]
Put simply, FXI has lagged those rivals long-term holding periods. S&P Capital IQ also has a marketweight rating on GXC.
“It has $900 million in assets and has a 0.59 percent expense ratio. However, it has a wider $0.12 bid ask spread. There are more than 200 holdings with less exposure to financials and telecom yet more to other sectors such as information technology,” the research firm said of GXC.
While there are important differences between the various China ETFs, the group shares at least one trait in common: The potential to be further boosted by compelling valuations.
“In spite of an unimpressive 1.2 percent performance so far this year, absolute valuations of the Shanghai stock index (as proxied by the MSCI China index) justify a modest excess exposure to the nation’s equities. At 9.8x one-year forward earnings, India’s positive-adjusted, price earnings multiple (p/e) is lower than its record high (39.6x), just 5 points above its all-time low, and 3.8 points below its historical average (16.7x). In addition, it trades at a discount to all its regional rivals. Also, when compared to the broader markets, aggregate Chinese shares are far cheaper than those of emerging Asia, Asia excluding Japan, Asia and all emerging markets,” according to S&P Capital IQ. [A Stellar China ETF]
SPDR S&P China ETF
