Finding Opportunity in Chinese Small-Cap ETFs | ETF Trends

As more look back into Chinese markets, investors may find opportunity in China small-cap ETFs.

Foreign investors are jumping into smaller stocks in Chinese markets ahead of their likely inclusion in MSCI Inc.’s global benchmarks, the Wall Street Journal reports.

China’s equity market has attracted greater attention this year, with Chinese company shares surging on signs of easing trade tensions and growing economic support out of Beijing.

In response, global investors have funneled a net 113.4 billion, or $16.9 billion, into mainland Chinese shares through a stock link with Hong Kong this year, compared to 32.9 billion yuan a year earlier, according to Wind data. The investors added to holdings of 56 stocks, including 33 from the ChiNext board and 17 from Shenzhen’s SME board, which include a number of small- and mid-sized companies.

Observers argued that the sudden spike in interest for these Chinese companies comes ahead of a widely expected decision from MSCI to increase the presence of mainland Chinese shares key benchmarks this year, Wu Zhaoyin, chief strategist at AVIC Trust Co., said.

MSCI is scheduled to make an announcement Thursday afternoon on whether or not it will add ChiNext stocks to its indices from May and include mid-cap Chinese stocks from 2020.

“Despite their still small overall presence, foreign investors have been a driving force behind the recent rally in our market. It’s the momentum of their net buying that counts,” Wu told the WSJ.

China Small Cap ETF Plays

Investors who are interested in gaining exposure to the SME-ChiNext 100 Index can look to something like the VanEck Vectors ChinaAMC SME-ChiNext ETF (NYSEArca: CNXT), which tracks the performance of the 100 largest and most liquid China A-share stocks listed and trading on the Small and Medium Enterprise Board and the ChiNext Board of the Shenzhen Stock Exchange.

Additionally, ETF investors can also look to China small-cap ETFs to gain exposure to these smaller Chinese companies. For example, the iShares MSCI China Small Cap ETF (NYSEArca: ECNS), Invesco China Small Cap ETF (NYSEArca: HAO) and Xtrackers Harvest CSI 500 China A-Shares Small Cap ETF (NYSEArca: ASHS) all focus on the Chinese small-cap segment.

For more information on Chinese markets, visit our China category.