It is becoming a common theme. “It” being scores of China exchange traded funds populating the daily all-time and 52-week high lists for ETFs.
On Monday, 15 China ETFs touched all-time highs. Over the past 90 days, 10 of the top 20 non-leveraged ETFs are China funds. However, investors are missing out on a rally that has lifted Hong Kong’s benchmark Hang Seng Index and the Shanghai Composite to multi-year highs.
“As the Hang Seng China Enterprises Index climbed 22 percent this year, traders were caught off guard, pulling about $100 million from the largest China exchange-traded fund in the U.S. over the span,” reports Belinda Cao for Bloomberg.
The ETF being referred to is the iShares China Large-Cap ETF (NYSEArca: FXI). Among the four largest single-country ETFs tracking BRIC nations, FXI trails only the Market Vectors Russia ETF (NYSEArca: RSX) in terms of 2015 returns. However, only the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ), the worst performer of the four big BRIC country-specific ETFs, has lost more assets than the nearly $100 million shed by FXI. [China H-Shares ETFs Surge]
However, data indicate FXI’s outflows are anomaly. For example, investors have allocated almost $34 million to the SPDR S&P China ETF (NYSEArca: GXC) and $637.5 million to the iShares MSCI China ETF (NYSEArca: MCHI).
Inflows to GXC and MCHI could be a sign that investors are realizing those ETFs often outperform over longer periods. MCHI and GXC are up an average of 54.3% over the past three years compared to a 53.7% gain for FXI. [Global ETF Opportunities]
GXC and MCHI hold 335 and 141 stocks, respectively, compared to just 51 in FXI.
Spurred by policy easing, Hong Kong-listed stocks are expected to move higher into the end of the year as the People’s Bank of China could be supportive of Chinese equities and the relevant U.S.-listed. The PBOC is already one of more than 20 global central banks to lower interest rates this year. In February, the PBOC extended its stimulus measures, reducing financing costs for businesses and potentially reigniting growth in the economy. [China ETFs get a PBOC Boost]
With Chinese A-shares, the stocks that trade on the mainland, expensive relative to their Hong Kong-listed counterparts, ETFs such as FXI, GXC and MCHI could see increased inflows as investors for perceived value with Chinese stocks. The Hang Seng trades at just over half the P/E of the Shanghai Composite and more than a quarter of A-shares have P/E ratios over 100.
iShares China Large-Cap ETF