ETFs
What slowdown? These China-focused ETFs are outperforming the S&P 500
Key takeaways
- Investment managers are returning en masse to Chinese exchange-traded funds (ETFs) in 2024, which will allow them to outperform the S&P 500.
- China’s regulatory measures to stem short-selling and increase state-backed stock purchases have stabilized the market after a $2 trillion sell-off from 2021.
- Foreign investors returned to reverse heavy capital outflows in late 2023, while Chinese domestic investors pumped $28.5 billion into Hong Kong-listed stocks.
Shares of Chinese companies have suffered a reversal of fortune after a difficult few years, and some China-focused companies have experienced a reversal of fortune. exchange-traded funds (ETFs) are now outperforming the S&P 500 this year.
Stimulated by the Chinese government’s stimulus measures, Chinese ETFs are experiencing a sharp rebound in investments. Money manager Investments in China were the highest among emerging countries for the week ended May 17, with inflows of $488 million, Bloomberg reported.
China-Focused ETFs Outpace S&P 500 Returns
The iShares China Large-Cap ETF (FXI), with approximately $5.2 billion in assets, is in the lead, showing growth of nearly 22%. year to date yield, compared to 11.5% for the S&P 500 Tuesday evening. The ETF tracks the FTSE China 50 Index, providing investors with exposure to the 50 largest companies listed on the Hong Kong Stock Exchange.
Close behind is the $5.9 billion iShares MSCI China ETF (MCHI) with a yield of 13.6%.
The largest China-focused ETF, although a more specialized ETF, is the $6.5 billion KraneShares CSI China Internet ETF (KWEB) which has gained around 20% since the start of the year.
Interestingly, Tencent Holding (TCEHY) and the Alibaba Group (BABA) are among the top three holdings of these three ETFs.
Diversification can be found in the Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR), which tracks the broader market, but this ETF lags large caps with a return of 7% so far in 2024.
Trading View
Investors around the world are returning to Chinese stocks
Amid fears of an economic slowdown, accumulated outflows from Chinese stocks since August 2023 peaked at 218 billion yuan ($30.2 billion) in January this year, according to a separate analysis of Bloomberg data. But this trend began to reverse in February after Chinese authorities announced measures aimed at stabilizing markets, moving them away from their lowest levels in several years.
These measures included restrictions on securities lending and short sale, and public investment funds have also pledged to step up their purchases to reverse a $2 trillion loss in market capitalization from 2021 highs. These measures appear to be paying off, as total capital outflows shrank to around 100 billion yuan in early May. Chinese investors have also been very active in Hong Kong-listed stocks, with total inflows reaching HK$223 billion ($28.5 billion) this year.
Some prominent investors bet this big on U.S.-traded Chinese stocks in the first quarter, data from their recent 13-F filings shows. David Tepper’s Appaloosa Management more than doubled the number of Alibaba shares in its portfolio and did the same with Baidu (BIDU), adding 1.17 million shares, and with PDD Holdings (PDD), by purchasing an additional 1.32 million shares of this company. Tepper also took a new position of 3.6 million shares in Chinese e-commerce company JD.com (J.D.).
“Big short” Michael BurryScion Asset Management’s Scion Asset Management added to its holdings in JD.com and Alibaba and opened a new position in Baidu.