China ETFs Surge as COVID-19 Restrictions Eased

Investors in China-focused exchange-traded funds are finally getting what they’ve waited for since February 2021: Prices are rising in their beaten-down investments. 

During the 30 days ended Nov. 29, all but a few China-focused ETFs notched double-digit returns, with five funds up between 28% and 54%. Just this month alone, since China said it would dismantle strict COVID-19 laws, the funds have surged further. 

The top-performing China ETF during this period was the Global X MSCI China Real Estate ETF (CHIR), which was up a stunning 53.4%. That could be because China’s property crisis, which intensified in 2021 and has continued since then, also may be coming to an end. That said, the fund is still down almost 26% over the past 12 months. CHIR is also a tiny fund, with less than $7 million in assets under management and an average spread of 1.95%, which is huge for an ETF. 

The $5.1 billion KraneShares CSI China Internet ETF (KWEB) was a pretty hot fund up until February 2021, when it peaked before going into a fairly steep decline. It finished 2021 down almost 49%, but during the 30 days ended Nov. 29, it notched a return of more than 38%, though it’s still down 36.8% for the 12-month period. And despite its poor performance, it has seen more than $9 billion in inflows since its 2021 high.  

The $5.9 million KraneShares Hang Seng TECH Index ETF (KTEC) launched in June 2021, well after China’s markets had come off their highs. It was up 32% during the 30-day period ended Nov. 29, though it’s still down 37.5% during the 12-month period.  

The $190 million Invesco Golden Dragon China ETF (PGJ) is one of the older ETFs to cover China, having launched in late 2004. Its underlying index targets a portfolio of nearly 70 American depositary receipts representing Chinese companies. PGJ is up 28.5% for the 30-day period, despite a 12-month decline of 42.1%. ADRs tracking Chinese stocks could be forced to delist in 2024 if they don’t meet certain U.S. auditing standards, though some of the affected companies announced they would voluntarily delist their shares. 

Finally, the $5.9 million Global X MSCI China Communication Services ETF (CHIC) is up 28% during the 30-day period, though it remains down 38.3% for the 12 months. The communication services sector combines exposure to internet companies and traditional telecommunications firms, so it was also affected by China’s tech crackdown. 

The dramatic and widespread nature of the positive upturn suggests China might be at an inflection point. Still, a Financial Times column this week by Robert Armstrong notes that while valuations are low, other countries have slipped even further.  

The funds hardest hit in 2021 have been the best performers during the more recent 30-day period. 

China’s draconian zero-COVID-19 policies have slowed the country’s economy to the point that the World Bank cut its growth outlook to 2.8% this year from 8.1% in 2021. The policies followed harsh restrictions China placed on its tech sector last year that sent that portion of the economy into a tailspin.  

Contact Heather Bell at [email protected]