As China ETFs Surge in 2019, VanEck's 'CNXT' is Up 33% YTD

Chinese stocks and the related ETFs are surging this year. Up more than 33% year-to-date, the VanEck Vectors ChinaAMC CSI 300 ETF (NYSEArca: CNXT) is one of the leaders of the China ETF pack.

CNXT is one of the funds benefiting from MSCI’s February announcement that it will increase the weight of A-shares, the stocks trading on mainland China, in its international indexes. Last month, MSCI announced it would follow through on its September proposal to increase the “inclusion factor” of mainland companies in its benchmark indices to 20% from previous cap of 5% over a three-step process starting in May, the Wall Street Journal reports.

Global investors traditionally accessed Chinese company stocks through listings through Hong Kong or New York Stock Exchange, but the recent inclusion of mainland Chinese A-shares to these widely observed global benchmarks now makes Chinese markets more important than ever, potentially opening up a closed off market to a huge pool of potential investors. MSCI’s decision could attract tens of billions of dollars into China, the world’s second largest economy.

CNXT, which turns five years old in July, tracks the SME-ChiNext 100 Index. That index “tracks the performance of the 100 largest and most liquid China A-share stocks listed and trading on the Small and Medium Enterprise (“SME”) Board and the ChiNext Board of the Shenzhen Stock Exchange,” according to VanEck.

Marvelous Mid Cap ETFs

CNXT provides exposure to mid- and smaller-sized A-shares companies, some of which will see increased prominence in MSCI benchmarks as the index provider’s A-shares expansion takes hold.

“One critical development is that securities on the ChiNext board of the Shenzhen Stock Exchange are set to be included this year, in addition to mid-cap A-share companies,” said VanEck in a recent note. “These types of companies are generally smaller and operate in consumer-led sectors, so they have exposure to the segments of the Chinese economy that we believe are expected to drive growth going forward.”

CNXT’s mid-cap exposure could potentially benefit investors going forward.

“The inclusion of mid-caps and ChiNext securities adds a new opportunity set into global benchmarks. Mid cap companies may provide investors a different risk/reward profile than large cap companies. ChiNext board companies represent about one-fifth of the market cap of China A-share companies, with a tilt toward technology firms, and may also provide differentiated exposure compared to large cap Chinese companies,” according to VanEck.

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

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.