From Sweta Killa: The Chinese stock market was on fire in February buoyed by optimism over trade deal with the United States. This is especially true as the nearly year-long trade spat between the world’s two largest economies seems to be coming to an end after President Donald Trump delayed his plan for raising tariff on $200 billion worth of Chinese goods from 10% to 25%, indicating chances of a fruitful trade deal (read: 10 ETF Areas to Gain as Trump Delays Additional Tariffs).
Additionally, stimulus and a wide range of reforms implemented by the government to revitalize its economic growth have raised the appeal for these stocks. China’s central bank cut its reserve requirement ratio (RRR) for the fifth time early this year and offered financial institutions $83 billion in liquidity as part of a wider economic stimulus. The bank has signaled more stimulus measures in the near term. The lifting of some trading curbs and deeper reforms in the finance sector have added to the enthusiasm. Moreover, depressed valuations have also encouraged investors to charge up at lower levels.
Adding to the fervor is MSCI’s move to quadruple the weighting of Chinese big caps (A-shares) from the current 5% to 20% for a number of its indexes, most notably the MSCI Emerging Markets Index in three phases — 10% in May, 15% in August, and further to 20% in November. The global index provider will also add 168 new mid caps in November and 27 stocks from the Shenzhen Stock Exchange’s ChiNext.
The move will likely trigger more than $80 billion of fresh foreign inflows to the world’s second-biggest economy, per the index provider. China is also set to enter a world bond index in April and a rival global stock index in June (read: Trump Postpones Tariff Deadline: 5 Hot China ETFs Set to Rally).
The combination of all these trends have injected around a trillion dollar rally into the Chinese stock market, sending the major indices into the bull market territory. The ChiNext Index of small caps and technology stocks entered a bull market on Feb 22, while the Shanghai Composite index and CSI 300 Index barged into to the bull territory on Feb 25.
The bullish fundamentals are likely to continue and China’s stocks are poised to go up further at least in the near term. As such, we have highlighted five top performing ETF of February:
This fund offers exposure to the 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 by tracking the SME-ChiNext 100 index. It holds 100 stocks in its basket with none accounting for more than 6.2% share. The product is unpopular with AUM of $20.1 million and average daily volume of around 10,000 shares. It charges 65 bps in fees per year and has gained more than 22% in February. CNXT has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Top Performing ETF Areas of February).
This fund offers direct exposure to small-cap China A-share equities and follows the China Securities 500 Index. Holding 503 stocks in its basket, it is widely spread across components with none holding more than 0.51% of assets. Industrials, materials, information technology, consumer discretionary and healthcare are the top five sectors with double-digit exposure each. It is often overlooked by investors as depicted by AUM of $31.5 million and average daily volume of around 16,000 shares. The product charges 65 bps in annual fees and has a Zacks ETF Rank #3 with a High risk outlook. It gained about 19% last month.
This ETF seeks to invest in companies utilizing blockchain technology by tracking the Reality Shares Nasdaq Blockchain China Index. It holds a basket of 40 stocks with each making up for less than 4.9% share. Information technology takes the largest share at 32.9%, followed by financials (25%), consumer discretionary (16.3%) and communication services (12.1%). The fund has accumulated $2.3 million in its asset base while trades in paltry volume of less than 1,000 shares per day on average. It charges 78 bps in annual fees and added about 17% in a month.
This fund tracks the CSI 300 Index, which comprises the largest and most liquid stocks in the Chinese A-share market. It holds a basket of 302 stocks with none accounting for more than 6.9% of assets. From a sector look, more than one-third of the portfolio is allotted to financials, followed by industrials (13.6%) and consumer discretionary (9.9%). The fund has amassed $69.3 million in its asset base and charges 60 bps per year. Volume is light as it exchanges about 11,000 shares per day on average. PEK is up nearly 14% in a month and has a Zacks ETF Rank #3 with a High risk outlook (read: Top ETF Stories of February).
This product offers exposure to A shares of companies incorporated in mainland China and tracks the MSCI China A International IMI Index. Holding 618 securities in its basket, it is well spread out across components with none making up for more than 3% share. Here also, financials is the top sector with 23.4% allocation while industrials and consumer staples round off the next two spots. The product has AUM of $5.1 million and trades in average daily volume of 2,000 shares. It charges 65 bps in annual fees and gained nearly 14% in February. XINA has a Zacks ETF Rank #3 with a High risk outlook.
The iShares China Large-Cap ETF (FXI) was trading at $44.30 per share on Friday afternoon, up $0.67 (+1.54%). Year-to-date, FXI has declined -4.05%, versus a 5.47% rise in the benchmark S&P 500 index during the same period.
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