China country-specific exchange traded funds just enjoyed one of their best months in over a year.
In June, the iShares MSCI China ETF (NASDAQ: MCHI) rose 7.8% and the KraneShares CSI China Internet ETF (KWEB) increased 12%, whereas the S&P 500 declined 8.4%, the Wall Street Journal reported.
Meanwhile, the two largest China country-related ETFs both attracted more than $1 billion in net inflows over June, according to Refinitiv Lipper data.
The turnaround occurred after Chinese equities bottomed out in mid-March, losing about half their value following a yearlong rout. Chinese markets have been plagued by regulatory crackdowns, fears of Chinese stocks delisting from U.S. exchanges, and COVID-lockdown measures.
Market fears have since been mollified by a more market-friendly approach from Beijing, notably a calming speech from Vice Premier Liu He, known as China’s economic czar.
Brendan Ahern, chief investment officer of KraneShares, argued that the money flows for ETFs reflect a shift in investor attitude toward China.
“Sentiment on China has been so low,” Ahern told the WSJ. “Foreign investors are beginning to rectify their previous underweights on Chinese equities.”
“Many of the challenges facing Chinese equities have been diminished. Now we have some tailwinds, particularly for the China internet space,” Ahern added. “Investors want to run downhill, versus uphill.”
However, Todd Sohn, technical and ETF strategist at Strategas Securities, warned that Chinese equities may not be for the risk-averse, especially Chinese internet stocks, which have been nearly twice as volatile as the S&P 500 over the past year.
“It’s hard to view China as a ‘buy and hold’ strategy with its volatility profile; I’d hesitate to recommend it to a large allocator,” Sohn told the WSJ. “It’s one of the few areas of the world that is easing [policy]. We’ll find out soon if that becomes more of a negative. You need a lot of mental fortitude to be in these areas.”
For more news, information, and strategy, visit VettaFi.