Thanks to a recent slew of upbeat economic data from China, equities in the space have seen a surge for the past one month. In fact, almost all the China equities ETFs have delivered positive returns both in the last one week and one month frame.
The Hong Kong benchmark stock index – Hang Seng – has advanced roughly 11% last month from the lows of March, as the stimulus measures introduced by the Chinese authorities to bring the economy back to health are finally starting to yield results, as per a Bloomberg report.
Moreover, the world’s second largest economy got a further boost last week after U.S. unemployment fell to a six-year low.
The Feel Good Data Points Driving the Markets
While slowdown concerns had earlier raised fears about a “hard landing” in China, the recent indication of rising manufacturing activity in the country has fuelled a rally in both the emerging and developed nations over the past two weeks.
The HSBC Bank's preliminary or flash manufacturing sector PMI for June came in at a seven-month high of 50.8 versus 49.4 in May – the first time that the reading has come above the '50' mark (read: China ETFs to Watch on Strong Manufacturing Data).
This is important as it reflects China’s factory activity not for large state-owned enterprises but for small and medium-sized businesses.
Other indicators of the Chinese economy such as exports, retail sales and industrial production are also showing signs of improvement.
The credit for the positive reading goes to the Chinese government which has recently introduced business tax breaks, targeted credit easing for some banks, incentives to encourage lending in rural areas and targeted infrastructure outlays.
Following the encouraging economic figures, investment banking firms have raised their forecasts for China. While Barclays has upgraded the GDP growth forecast for the second quarter to 7.4%, JPMorgan Chase expects second quarter GDP growth in the band of 6.8% to 7.2 %.
International Monetary Fund’s managing director Christine Lagarde also recently affirmed that she doesn’t except a sharp slowdown in China.
Taken together, these factors have led China ETFs to clock nice gains in the past one month. Below, we have highlighted three ETFs which have surged the most and have easily outperformed iShares FTSE China 25 Index Fund (FXI - ETF report) – the largest and the most popular China equities ETF.
CSI China Internet ETF ((KWEB - ETF report)) – Up 11.8%
The China Internet space has not only been the best performer in the past one month, it is also leading the China equities space in the year-to-date frame. This is especially true as the nation is seeing an increasing number of Internet users and there is a vast scope for further expansion as penetration is still very low (read: China Internet ETF: The Best Choice in the Space?).
KWEB holds a basket of 44 stocks, giving exposure to a variety of industries in the Technology space including Internet & Mobile Applications, Internet & Catalog Retail, and Software & Programming.
The fund provides concentrated exposure to some of the biggest Chinese Internet companies with one-fourth of the total fund assets allocated to the top three – Tencent Holdings, Baidu.Com and Ctrip.Com.
Though the fund is a little pricey with 71 basis points as expenses, it has gained 4.5% in the past one week and 11.8% in the past one month (see all Technology ETFs here).
RBS China Trendpilot ETN ((TCHI - ETF report)) – Up 10.3%
The fund tracks the RBS China Trendpilot Index, which utilizes a systematic trend-following strategy to provide exposure to either the BNY Mellon China Select ADR Total Return Index (the “Benchmark Index”) or the yield on a hypothetical notional investment in three-month U.S. Treasury bills, depending on the performance of the Benchmark Index on a simple historical moving average basis.
This strategy renders the fund quite expensive with 1.1% as fees. Moreover, volumes are also pretty dry as the ETF has an average trading volume of just 4,000 shares a day.
The fund has added 6.4% in the past week and 10.3% in the past one month.
Golden Dragon Halter USX China Portfolio ((PGJ - ETF report)) – Up 8.9%
PGJ tracks the Nasdaq Golden Dragon China Index holding a basket of 73 stocks.
The fund is heavily invested in the Technology space, allocating half of the total fund assets, followed by Consumer Discretionary. The fund is, however, light on most of the other sectors such as Healthcare, Telecom, Energy and Industrial.
Tech firms – Ctrip.Com, Baidu and Qihoo 360 Technology – occupy the top three spots. The fund is the cheapest among the trio with 60 basis points as expenses and also sees decent trading volumes (see all Asia-Pacific (Emerging) ETFs here).
The fund has returned 3.7% in the past seven days and 8.9% during the past 30 days.
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