Plans by Chinese regulators to permit cross-market investing between Shanghai and Hong Kong are expected to become reality next month and the anticipation is sending cash to exchange traded funds tracking China’s A-shares equities.
“One can see the temptation: Once the Connect opens, China will allow foreign investors to trade 13 billion yuan a day, or 23% of average daily trading volume. That could provide a serious boost to the cheap, discounted onshore market,” reports Shuli Ren for Barron’s.
Demand for U.S.-listed A-shares has recently been so robust that last week Deutsche Asset & Wealth Management said it will limit creations in the Deutsche X-trackers Harvest CSI 300 China A-Shares Fund (NYSEArca: ASHR) and the Deutsche X-trackers Harvest CSI 500 China A-Shares Small Cap Fund (NYSEArca: ASHS) to one creation unit of 50,000 per day. [Strong Demand Forces Limited Creations in Some A-Shares ETFs]
Heavy demand, for ASHR in particular, is forcing the two ETFs to bump up against their respective Renminbi Qualified Foreign Institutional Investor (RQFII), which allows the funds to purchase A-shares equities. Just last week, ASHR hauled in $110.1 million in new assets, cementing its status as the largest U.S.-listed A-shares ETF. The ETF has nearly $372 million in assets under management in just over 10 months on the market. ASHS, the first U.S.-listed A-shares A-shares small-cap ETF, debuted in May and has over $6 million in AUM.
The vastness of China’s onshore equity market has been a source of allure for foreign investors and that allure could increase with Hong Kong-Shanghai connect. “China’s stock market capitalisation is huge: the current figure of $3.7 trillion, according to data provider Quandl is equal to double that of France, triple that of India and 10 times the level in Italy,” reports Aaron Woolner for Risk.net.
A-shares, which trade in Shanghai and Shenzhen, have historically traded at premiums to H-shares, stocks traded in Hong Kong. Currently, A-shares stocks trade at a discount to their H-shares counterparts.
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 while stocks in Hong Kong trade at over 12 times earnings. [A-Shares ETFs are Value Plays]
Deutsche X-trackers Harvest CSI 300 China A-Shares Fund
ETF Trends editorial team contributed to this post.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.