U.S. ETF investors missed the fast boat to China

April 14, 2015 9:57 AM (UTC+8)


Don’t say Asia Unhedged didn’t tell you so. Bloomberg reported Tuesday that China ETF investors in U.S. are missing out on the world’s best stock rally.

While China bears bared their claws earlier this year, the Hang Seng China Enterprises Index jumped 22% from January. Traders were caught unawares, yanking about $100 million from the largest China exchange-traded fund in the U.S. in the period, according to Bloomberg data.

Even with the withdrawals, assets in the fund have reportedly surged to more than $7 billion as Hong Kong’s H-share market soared. “The Shanghai Composite Index climbed to a seven-year high in a frenzy of stock purchases by Chinese investors as the government eased monetary policy to counter a slowdown in the world’s second-largest economy. The advance pushed the yuan-denominated A shares to the most expensive level in three years last month versus their dual-listed Hong Kong counterparts, leading international investors to speculate that the valuation gap would narrow through a retreat in mainland stocks rather than gains in the Hong Kong market,” Bloomberg said.

U.S. ETF money is now cascading back to the Middle Kingdom. U.S. investors are now returning to the iShares China Large-Cap ETF after it catapulted 24% since mid-March, adding about $90 million on April 10 for the biggest one-day inflow since August, according to Bloomberg. The fund tracks the 50 largest Chinese stocks trading in Hong Kong.

All of this comes as the record rally in China shows no signs of letting up. The Hong Kong index for Chinese companies rallied 10% last week, the biggest gain since October 2011, sending the benchmark to a four-year high of 13,987.53. That rally has spread to U.S.-listed Chinese companies listed, feeding a 7% record gain in a Bloomberg index of the most-traded Chinese stocks in the U.S.

Wait a minute, you say, isn’t China’s economy sputtering, with some grizzly bears betting on a tailspin? Asia Unhedged opines that the country’s economy is indeed slowing, but that the current rally in Chinese stocks is held together with far more than thumb tacks and paper clips.