Exchange traded funds tracking China’s H-shares, the stocks trading in Hong Kong, surged last month. Investors took note, funneling over $1 billion into U.S.-listed funds as billions flowed into the Hong Kong equivalents.
“The Hang Seng H-Share Index Fund lured HK$20.5 billion ($2.6 billion) in April, the largest monthly inflow since at least 2010 and the third-most among equity ETFs globally, according to data compiled by Bloomberg. About HK$29 billion has been added to the fund during the past four months in the longest stretch since 2013 as assets grew to HK$57.1 billion,” reports Belina Cao for Bloomberg.
China’s A-shares, the stocks trading on mainland bourses in Shanghai and Shenzhen, are expensive relative to their Hong Kong peers. Over a quarter of A-shares sporting P/E ratios north of 100, helping stoke returns and inflows to ETFs such as the iShares China Large-Cap ETF (NYSEArca: FXI). [Bearish Bet on China ETFs Rise]
FXI, the largest U.S.-listed China ETF, climbed 13.6% last month as investors poured over $384 million into the fund. Active managers may be pressured to increase their positions in the Chinese markets after funds have underperformed their benchmarks for their worst performance since 2009, according to Goldman Sachs.
Specifically, only 20% of emerging market funds and 40% of Asia ex-Japan funds have outperformed their respectively benchmarks this year, compared to the 60% to 70% average over the past five years, due to many funds’ underweight China position. [Underweight Active Managers Could Fuel China ETF Rally]
There are signs the move to Chinese stocks and ETFs got underway last month. The SPDR S&P China ETF (NYSEArca: GXC) up 23.6% and the iShares MSCI China ETF (NYSEArca: MCHI) each gained more than 13% last month on the way to adding $56.1 million and $407.7 million in new assets, respectively.
“While the Hang Seng China Enterprises Index soared 17 percent in April, the most since October 2011, A shares in China are still trading at a 31 percent premium to stocks in Hong Kong,” according to Bloomberg.
Investors are also embracing H-shares small-cap ETFs. For example, an April surge of 23.4% sparked almost $24 million of inflows to the Guggenheim China Small Cap Index ETF (NYSEArca: HAO). That after HAO was largely glossed over during a parabolic ascent that saw the ETF climb to $32 from $26 in just seven trading sessions. [Big Move for a China Small-Cap ETF]
Lost in all the fanfare surrounding China ETFs and Hong Kong stocks has been the largest U.S.-listed that actually tracks Hong Kong. The iShares MSCI Hong Kong ETF (NYSEArca: EWH) climbed 6.9% last month as investors poured $355 million into the $3.5 billion ETF.
EWH resides near all-time highs. The ETF, which is home to 40 stocks, allocates 30.5% of its weight to real estate stocks.
iShares China Large-Cap ETF