Chinese equities were getting crushed Friday, along with global markets. While some may be wary about buying the dips after the the sudden rally, China H-shares-related exchange traded funds may still offer cheap valuations.
For instance, the iShares China Large-Cap ETF (NYSEArca: FXI), which tracks Chinese companies listed on the Hong Kong stock exchange, plunged 4.8% Friday after surging 23.7% over the past month. [China H-Shares ETFs Get Their Moment in the Limelight]
Nevertheless, FXI currently shows a 10.7 price-to-earnings ratio and a 1.4 price-to-book. In contrast, the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (NYSEArca: ASHR), which tracks mainland Chinese A-shares and rose 22.8% over past month, has a 12.8 P/E ratio and a 2.0 P/B ratio.
Similarly, other China H-shares ETFs also show slightly cheaper valuations, including the SPDR S&P China ETF (NYSEArca: GXC) with a 10.7 P/E and a 1.3 P/B and the iShares MSCI China ETF (NYSEArca: MCHI) with a 11.0 P/E and a 1.4 P/B. [China ETFs Soar, but U.S. Investors Miss Out]
Linda Xie, the manager of the IGW China-HK Selected Equity Fund, argues that Chinese shares listed in Hong Kong will likely continue to outperform their mainland counterparts as valuations are much cheaper, Bloomberg reports.
According to the Hang Seng China AH Premium Index, dual-listed stocks on Chinese exchange are 25% more expensive than those listed in Hong Kong.
After regulators gave the green light for mutual funds to access the Hong Kong bourse, Chinese funds have been piling on Hong Kong-listed equities.
“Low-valuation, big-capitalization H shares that have big discounts to A shares and good liquidity will realize above-average returns,” Xie, a fund manager at Invesco Great Wall Fund Management Co., said in the article.
The two governments have adopted the so-called Shanghai-Hong Kong Stock Connect Program. Due to a new China Securities Regulatory Commission rule adopted at the end of March, domestic Chinese money managers are no longer required to be part of the Qualified Domestic Institutional Investor program to utilize the link. Previously, the Stock Connect program was only opened to wealthy mainland individuals and some index-tracking ETFs.
iShares China Large-Cap ETF
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Max Chen contributed to this article.