Investors are piling back into Chinese equities and country-specific exchange traded funds ahead of the Lunar New Year festivities. Since the Shanghai bourse will be closed during the week-long holiday, China A-shares ETF traders should be prepared for wider premiums and discounts.
More investors are turning to Chinese markets. For instance China-related equity funds attracted $1.62 billion in assets for the week ended February 11, with most of the money funneled into China A-shares ETFs, reports Shuli Ren for Barron’s. [PBOC Easing Could Support China ETFs]
Investors were jumping back in as China’s benchmark stock index capped its first weekly gain in a month in response to Beijing injecting cash back into the system to counter the sudden spike in new IPOs and cash demand ahead of the Chinese New Year holiday, which begins Wednesday, February 18 through Tuesday, February 24.
With the increased interest, China A-shares ETF investors should know what they are getting themselves into. The db X-trackers Harvest CSI 300 China A-Shares Fund (NYSEArca: ASHR) and Market Vectors ChinaAMC A-Share ETF (NYSEArca: PEK) both track the CSI 300 Index. The KraneShares Bosera MSCI China A ETF (NYSEArca: KBA) tracks the MSCI China A Index. The PowerShares China A-Share Portfolio (NYSEArca: CHNA) is an actively managed option that utilizes SGX FTSE China A50 Index futures contracts. [A-Shares ETFs not Lacking for Fans]
Through the QFII system, foreign investors are able to access Chinese A-shares, which trade on the Shanghai Stock Exchange and the Shenzen Stock Exchange and are typically only available to mainland citizens. A-shares are also only quoted in the Chinese renminbi currency. [Another Creation Limit for an A-Shares ETF]
Unlike other China ETFs, these A-Shares ETFs track companies listed in China’s stock exchange, whereas the other options track companies listed on Hong Kong or U.S. exchanges.
During the week-long holiday, Chinese mainland shares will not be trading. However, U.S.-listed China A-shares ETFs will continue to trade on U.S. exchanges. Consequently, these ETFs could trade at premiums or discounts to their net asset value
The country-specific ETF premiums and discounts could widen since the NAVs are calculated based on the prices when the Chinese markets close Tuesday, February 17 before the week-long holiday. Since the U.S.-listed ETFs continue to trade in New York, their prices will not reflect information that has been priced into their NAVs. Nevertheless, once Chinese markets open on Wednesday, February 25, the premium or discount should dissipate as market makers take advantage of arbitrage opportunities to bring the ETFs’ price back in line with their NAVs.
For more information on the Chinese markets, visit our China category.
Max Chen contributed to this article.
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.