FXI and its rivals, several of which also feature smaller but still significant weights to Chinese banks, could benefit from favorable PBOC monetary policy. The largest state-backed banks could benefit from the grater flexibility to set rates. These banks won’t have to compete for deposits since the average saver will feel these banks are safer as a government-controlled entity. FXI features an infamous and oft-criticized weight to the financial services sector, which entering trading Monday was 48.3%.
While there may be more upside to be had with FXI, that does not mean investors should rush to be short A-shares ETFs as a pairs with a long position in FXI. Although the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (NYSEArca: ASHR)/FXI looks compelling to be short the former and long the latter, that trade presents risk because, as Azous notes, Chinese stocks are being driven by liquidity, something that is unlikely to change in the near-term.
Bolstering the case for not shorting A-shares ETFs are these factoids. Of the nine ETFs at all-time highs, five, including ASHR, are A-shares funds. Each of the top three non-leveraged ETFs in terms of percentage gains to this point in Monday’s session are A-shares funds. [A-Shares ETFs Surge]
iShares China Large-Cap ETF
