Add the Market Vectors ChinaAMC A-Share ETF (NYSEArca: PEK) to the list of U.S.-listed exchange traded funds that have benefited from the surge in Chinese A-shares.
PEK, the oldest U.S.-listed ETF offering exposure to A-shares, the stocks trading on China’s mainland in Shanghai and Shenzhen, has topped $100 million in assets under management. To be precise, PEK had $126.2 million in assets under management as of April 13, according to Market Vectors data.
PEK, which debuted in October 2010, initially offered investors A-shares exposure via a basket of derivatives contracts. In early 2014, Market Vectors announced it entered into an agreement with China Asset Management, China’s largest mutual fund manager by assets under management, allowing PEK to give investors physical exposure to A-shares. [Market Vectors ETF Moves Toward Physical A-Shares Holdings]
Partnerships, such as the one Market Vectors has with China Asset Management, are critical for foreign ETF issuers being A-shares ETF that holds actual equities. China Asset Management Renminbi Qualified Foreign Institutional Investor (RQFII), which means it meets Chinese regulatory requirements to be a foreign owner of A-shares.
PEK tracks the CSI 300 Index, a modified, free-float cap-weighted index that is home to stocks listed in Shanghai and Shenzhen. That is the same index tracked by the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (NYSEArca: ASHR).
Over the past year, PEK has nearly doubled, surging 97.5% while the iShares China Large-Cap ETF (NYSEArca: FXI), the largest U.S.-listed China ETF, gained 42.5% over that period. PEK has proven adept at gathering assets as investors have skipped FXI.
For example, PEK has added nearly $8.7 million in new assets this year while FXI has bled $29.6 million. Last year, investors added $44 million to PEK while pulling $424 million from FXI. [U.S. Investors Miss out on China ETF Rally]
The A-shares rally has stocks on China’s mainland looking pricey relative to their Hong Kong counterparts. 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. However, there are catalysts that could drive A-shares higher.
Van Eck CEO Jan Van Eck noted that there are multiple reforms underway in the financial sector as well: reining in “gray market” loans; removing restrictions on commercial bank lending; developing a more formal, transparent corporate bond market; and reinvigorating the equity markets, including the market for initial public offerings (IPOs), according to a statement.
“By some measures, China is currently the largest economy in the world, so putting in place these kinds of economic and financial reforms takes time,” said van Eck. “However, we believe these reforms are beginning to be priced into the market. The recent rally in Chinese equities suggests to us that other investors are starting to come to a similar conclusion.”
Market Vectors also sponsors the Market Vectors ChinaAMC SME-ChiNext ETF (NYSEArca: CNXT), 2015’s top-performing non-leveraged ETF with a gain of over 53%, and the Market Vectors ChinaAMC China Bond ETF (NYSEArca: CBON).
Market Vectors ChinaAMC A-Share ETF