Investors Pull $436M From Largest China ETF

The largest China ETF, the $7.3 billion iShares MSCI China ETF (MCHI), has had $436 million in outflows since the beginning of June, while investors have poured funds into the largest India exchange-traded fund. 

Investors flocked to MCHI after the end of China’s zero-COVID policy in late 2022, as the fund garnered more than $1.4 billion in inflows between the start of November 2022 and the end of February 2023. Inflows, however, stalled out after that, with $436 million flowing out of the fund since the end of May. 

Since those outflows began, over $900 million has flowed into the $6.1 billion iShares MSCI India ETF (INDA), and the $5.2 billion iShares MSCI Emerging Markets ex China ETF (EMXC), has received $1.2 billion. Since the beginning of the year, the iShares MSCI Emerging Markets ETF (EEM) has gained 3.8% compared with an 8.1% gain for EMXC, reflecting China’s slower-than-expected economic recovery.  

“India is a strong beneficiary of what's happening in China, and it’s really interesting to see the success of the ‘Make in India’ manufacturing program that the government has been promoting,” said Malcolm Dorson, head of emerging markets strategy for Global X and a portfolio manager for the Global X India ETF (NDIA).  

India and Mexico Poised to Gain 

According to Dorson, companies have been investing to diversify their supply lines after the pandemic and rising geopolitical tension with China, which has made other stock markets more attractive. India, which has lower labor costs for manufacturing than China does, has capitalized on this trend with the “Make in India” program, which offers firms incentives to manufacture there. 

Dorson said firms have started to develop increased manufacturing capacity in Mexico, whose proximity to the U.S. is part of the phenomenon of “nearshoring,” as companies shorten supply chains after the disruption of the pandemic. The iShares MSCI Mexico ETF (EWW) hasn’t benefited from that trend: Some $120 million has flowed out of the fund since the end of May. 

'Peak Pessimism' for China Markets 

While Malcom thinks that India is a once-in-a-decade investing opportunity, he says that the markets have reached “peak pessimism,” for China. He believes that the Chinese Communist Party will continue to deliver economic growth and that Chinese markets have likely hit bottom.