The widely anticipated Shanghai-Hong Kong Stock Connect debuted during Monday’s Asian session with an enthusiastic reception as investors purchased the maximum allotment of shares.
Mainland investors used about 20% of their yuan quotas as over $2 billion flowed into A-shares equities, which prompted a trading halt so that market makers could process all of the orders. The reaction by U.S.-listed A-shares exchange traded funds, however, has not been impressive to this point indicating that Monday’s action in ETFs, such as the Deutsche X-trackers Harvest CSI 300 China A-Shares Fund (NYSEArca: ASHR), could be a case of “sell the news” behavior. [A=Shares ETFs Look to Stock Connect Debut for More Upside]
Shares of ASHR, the largest U.S.-listed A-shares ETF, are off by nearly 3% on heavy turnover today after hitting a new all-time last Friday. Other A-shares ETFs are struggling as well. The KraneShares Bosera MSCI China A-Shares ETF (NYSEArca: KBA) and the Market Vectors ChinaAMC A-Share ETF (NYSEArca: PEK), the oldest U.S.-listed A-shares ETF, are both down more than 2%.
With the debut of the Shanghai-Hong Kong Stock Connect, more Hong Kong investors were seen gobbling up mainland shares rather than the reverse scenario, according to Bloomberg. That is weighing on some well-known China ETFs that hold H-shares, or the stocks that trade in Hong Kong.
For example, the iShares China Large-Cap ETF (NYSEArca: FXI), the largest China country-specific ETF, and the iShares MSCI China ETF (NYSEArca: MCHI) join ASHR and PEK among the five worst-performing non-leveraged ETFs to this point in Monday’s session.
ASHR’s declines and those of its rivals may simply be a case of profit-taking and, more specifically to ASHR, the ETF coming back in line with its net asset value after closing at a noticeable NAV premium last Friday. ASHR’s closing NAV last Friday was $27.15, according to issuer data, but the ETF’s market price close 4% above NAV.
Last Thursday, Deutsche Asset & Wealth Management said it will have to limit creations of new shares of ASHR and the Deutsche X-trackers Harvest CSI 500 China A-Shares Small Cap Fund (NYSEArca: ASHS) because strong demand for those ETFs 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. [Heavy Demand Forces Limited Creations in A-Shares ETFs]
In a statement, Deutsche Asset & Wealth Management said starting on Nov. 24, ASHR and ASHS will accept just one creation unit of 50,000 shares each day per fund. The firm made a similar announcement in September and it took about a month for the creation limits to be lifted for ASHR and ASHS.
From Nov. 3 through Nov. 14, ASHR, KBA and PEK gained an average of 5.6% while investors poured $72.1 million into ASHR. Since the start of the fourth quarter, ASHS, the small-cap offering, has nearly doubled in size.
The Hong Kong, Shanghai and Shenzhen exchanges are the sixth-, seventh- and tenth-largest, respectively, in the world by market value, according to KraneShares, KBA’s issuer. Of the nearly 570 Shanghai-listed stocks that will be made available in the Connect effort, those stocks represent 90% of the Shanghai Stock Exchange’s market value and 80% of the daily turnover, according to KraneShares data.
Deutsche X-trackers Harvest CSI 300 China A-Shares ETF
