Chinese markets and country-specific exchange traded funds are gathering momentum ahead of the Lunar New Year break festivities, but some investors remain cautious with lingering concerns after being burned from the recent pullback.
Year-to-date, the SPDR S&P China ETF (NYSEArca: GXC) gained 8.9%, the iShares China Large-Cap ETF (NYSEArca: FXI) added 7.1% and Xtrackers Harvest CSI 300 China A-Shares ETF (NYSEArca: ASHR) rose 8.1%.
In eight of the past 10 years, the benchmark Shanghai Composite Index strengthened in the two weeks before the weeklong “spring festival” holiday that marks the beginning of the New Lunar Year, the Wall Street Journal reports. The Chinese New Year officially begins on Tuesday, February 5.
However, amid the ongoing trade tensions and economic strains, Chinese market gains have been capped. Nevertheless, some Chinese stocks, notably those related to consumer spending, have been rallying ahead of the break that begins on Monday.
The New Year effect shows a market influenced by millions of investors whom typically trade based on momentum.
“Institutional investors won’t bet on market trends that last for a couple of days or weeks, but retail investors here do,” Amy Lin, senior analyst at Capital Securities, told the WSJ.
Shen Meng, director at Chanson & Co., a boutique investment bank, also warned that cautioun remains behind the thin trading. “Trading volume remains very small, which shows that investors in general are quite nervous about the trade and economic outlook,” he said.
Trades changing hands in China’s stock markets have averaged 297 billion yuan, or $43.6 billion, so far this year, or below last year’s 369 billion yuan and falling far short of the record 1.3 trillion yuan pace the market set just before the 2015 rout.
“Investors here like to push up these consumer stocks before big holidays, but if the broader market doesn’t do well, they will have less to consume,” Gu Honglin, an individual investor from the eastern province of Jiangsu, told the Wall Street Journal.
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