Chinese markets and country-specific ETFs have plunged as a result of the escalating U.S. and China trade war conflict, but the selling may have been overdone.
“The trade war is bad, but we think this may be overdone. How is China A-shares down so much?” Robert Bush, ETF Strategist for DWS, told ETF Trends in a call.
The Xtrackers Harvest CSI 300 China A ETF (NYSEArca: ASHR), the largest China A-shares related ETF, decreased 17.0% year-to-date.
After the selling, “we argue that this is an opportunity. It is starting to look like an overreaction,” Bush said.
ASHR now trades at a 11.9 price-to-earnings and a 1.6 price-to-book, compared to the S&P 500’s 17.1 P/E and a 2.9 P/B.
Trade War: A Knee-Jerk Reaction?
The trade war selling may be seen as a knee-jerk reaction that has gone to the extreme. While the U.S. has threatened to ramp up restrictions on $200 billion in Chinese imports, the total amount is only a drop in the bucket for China’s overall export revenue streams, Eric Legunn, ETF Strategist for DWS, explained to ETF Trends.
Furthermore, many industries that are affected by the tariffs may be state-owned enterprises or even private companies, so many listed companies may not feel a direct effect.
Consequently, Bush believed that the investor sell-off could be attributed more to pricing in an escalation or a prolonged trade war.
Meanwhile, China, especially mainland Chinese A-shares, remains a relatively underrepresented asset in many U.S. investors’ portfolios. Looking ahead, more investors and money managers may begin to shift into Chinese A-shares as major index providers, more notably MSCI, adopting China A-shares into its benchmark emerging market index and international indices.
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