China ETFs Overlooked & Unloved In 2017

December 22, 2017

Technology Shines

If investors are largely missing the big picture about China’s economy, asset flows also suggest that they are bullish on China’s technology. Data points such as Alibaba’s record breaking sales and Chinese consumer increasing online shopping and tech reliance are helping push this segment forward.

The year’s most popular China ETF was the KraneShares CSI China Internet ETF (KWEB), which attracted more than $685 million in net creations this year. That amounts to a 64% growth of assets under management this year for KWEB.

The Guggenheim China Technology ETF (CQQQ) came in second, with net inflows of $324 million, an AUM jump of 76%.

These flows came as these funds delivered more than twice the gains of broader, total market China ETFs such as FXI—almost 70% in gains this year. 

 

 

Notable Standout ETF

Third on the list, with a massive 87% jump in AUM, is also the best-performing China ETF this year (excluding leverage and inverse), the WisdomTree China ex-State-Owned Enterprises Fund (CXSE).

CXSE is a total market fund that excludes state-owned companies, focusing instead on private companies believed to be run more efficiently. CXSE is up almost nearly 80% this year.

CXSE remains a relative small fund, with $151 million in total assets amassed over five years since inception. But throughout its history, the fund has once changed index and focus, and this past August, it added China A-shares—stocks listed in mainland China—to the portfolio for the first time. 

 

 

A-Shares Effect

Finally, a note about China’s A-shares market. According to Ahern, MSCI’s June decision to begin including China A-Shares in its benchmark emerging markets index in 2018 sparked a rally in China’s onshore market.

The largest China A-Shares ETF, the Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR), rallied some 31% this year, just slightly trailing FXI’s results. Investors poured $110 million into ASHR this year, making it the sixth-most popular China ETF year-to-date in 2017. 

 

Charts courtesy of StockCharts.com

 

“As China makes progress in face of the many naysayers‎, equities have much room to be revalued upward,” Mordy said. “The recent decision by MSCI to add 222 China A-share stocks starting in May 2018 is icing on the cake. Stay long FXI and ASHR.”

 

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