April Flowers: H-Shares ETFs Pack on the Assets

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.