Regarding emerging markets exchange traded funds, one of this year’s most prominent themes has been investors’ affinity for ETFs tracking China’s A-shares, the stocks trading on mainland exchanges in Shanghai and Shenzhen.
Until the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (NYSEArca: ASHR) debuted in November 2013, investors had to rely on ETFs that only offered synthetic exposure to A-shares. ASHR’s success has since kicked off a wave of enthusiasm for A-shares ETFs that shows few signs of abating.
Investors added $34.6 million to ASHR last week “to complete the longest stretch of asset gains since its November 2013 debut, according to data compiled by Bloomberg. More than $300 million has been put into the fund since the beginning of last month as it soared 35 percent,” reports Belinda Cao for Bloomberg.
Over the past month stocks in Shanghai have outpaced the world’s 92 other major equity bourses. Recent performances by A-shares ETFs might imply that their rally is in the late innings, but the 24.6% three-month for the Shanghai Composite indicates otherwise. [More to Come for A-Shares ETFs]
While single-country ETFs tracking emerging markets from Brazil to Russia have languished this year, A-shares have been delivered notable out-performance. Year-to-date, ASHR, the KraneShares Bosera MSCI China A-Shares ETF (NYSEArca: KBA) and the Market Vectors ChinaAMC A-Share ETF (NYSEArca: PEK) have returned an average of 47%.
That is good enough to rank each among the best performing international ETFs and the 10 ETFs of any type. [Another A-Shares ETF Rally]
ASHR has added nearly $145 million in new assets this month, but investors are also embracing rival funds. PEK, the oldest U.S.-listed A-shares ETF, has hauled in $38.2 million of its $92.4 million in assets under management. With $17 million in December inflows, KBA has more than quadrupled in size this month.
Next year could bring more upside for A-shares ETFs as local Chinese investors embrace equities. With local investors warming to equities over property, Goldman Sachs forecasts an estimated 400 billion yuan will depart China’s property market next year with the destination being A-shares equities.
Chinese investors are opening new brokerage accounts at the most rapid pace since 2007, boosting valuations on brokerage stocks. That has helped elevate A-shares ETFs, all of which devote significant portions of their weights to the financial services sector. ASHR allocates nearly 47% of its weight to financials while KBA’s weight to that sector is 40.6%.
Investor demand has been so robust for ASHR that three times since September has Deutsche Asset & Wealth Management been forced to limit creations in the ETF because it was bumping up against its Renminbi Qualified Foreign Institutional Investor (RQFII), which allows the funds to purchase A-shares equities. The most recent announcement of limited creations for ASHR was unveiled Monday and the creation limit will go into effect on Jan. 21, 2015.
Deutsche X-trackers Harvest CSI 300 China A-Shares Fund
