Credit: Shutterstock photoAfter spearheading the global markets for most of this year, the Chinese stocks and ETFs succumbed to a steep correction as their valuation reached a sky-high level. Some ETFs have returned almost double in the first five months of this year as investors binged on this market on hopes of more policy easing from the government to boost its waning economy (read: 5 Top Performing Country ETFs of 1H ).
As a result, a pull-back was long warranted after such a huge rally. Meanwhile, the Chinese securities' regulator repeatedly warned investors about riskier trading and rolled out a host of measures including tightening of rules for margin lending which trigged off the panic-induced sell-off. Overvaluation concerns led the market to correct itself about 32% in valuation from its peak on June 12 (read: Inside The Crash in China ETFs ).
To arrest this maddening sell-off, the Chinese government stopped new companies from selling shares to the public and introduced a fund to be used for purchasing shares. Investors having over 5% stake, corporate executives and directors have been forbidden to sell their shares for six months, per Chinese securities regulators.
This resulted in over 40% of the mainland China companies stopping their shares trading and locking up $2.6 trillion worth of shares early this week. All these measures coupled with the Greek debt drama spoilt investors' mood globally and gave the sell-off lately a devastating turn.
Correction: A Boon?
Every cloud has a silver lining. And this holds good for the Chinese market as well since the storm appears to be passing away from the Chinese investing world. After this horrendous sell-off, the Shanghai Composite gained 5.9% on July 9, its ` best session ' in six years. Stabilization in China shares and submission of a bailout plan by Greece helped contain the rout.
Moreover, with the Chinese economy still displaying sluggish economic numbers, possibilities of further easing are huge at the current level. Also, this pull-back sent China A-shares' stocks and ETFs to their fair valuation (read: Top ETF Stories of June ).
The correction may actually have better prepared China A-shares ETFs to cash in on any upcoming stimulus in the world's second largest economy. Thus, investors can view this dip as a buying opportunity in the China A-shares market rather than a time for escaping it. This was truer given the proactive approach of the Chinese regulators in restoring market movement.
Top-Ranked A-Shares ETFs in Focus
Below we highlight four ETFs which are worth a look as these hold a Zacks ETF Rank #2 (Buy) and are likely to outperform in the days to come.
Market Vectors ChinaAMC SME-ChiNext ETF ( CNXT )
This fund looks to track the SME-ChiNext 100 index which follows the performance of the 100 largest and most liquid China A-share stocks listed and trading on the Small and Medium Enterprise Board and the ChiNext Market of the Shenzhen Stock Exchange. Holding 101 stocks in its basket, the product is moderately spread out across components with each accounting for less than 3.39% share (read: 2 China ETFs Hitting All-Time Highs ).
Information Technology takes the top position from a sector look with little less than two-fifth allocation while Industrials, Consumer Discretionary and Health Care round off the next three spots. The product has amassed $40.5 million in AUM and sees moderate trading volume of about 175,000 shares a day on average. It charges about 66 bps in fees per year from investors and surged over 27% on July 9. After hours, the fund added over 1%.
Market Vectors China ETF ( PEK )
This fund tracks the CSI 300 Index and holds a large basket of 466 stocks. The portfolio is well spread out across various securities with none holding more than 3.58% of assets. From a sector look, more than one-third of the portfolio is allotted to financials, followed by industrials (18.1%) and consumer discretionary (10.2%).
The fund has amassed $116.4 million in its asset base and charges 72 bps per year. Volume is light as it exchanges about 150,000 shares per day on average. The fund was up 18.5% on July 9 and added about 0.2% after market.
KraneShares Bosera MSCI China A Share ETF ( KBA )
This fund follows the MSCI China A International Index, holding 312 securities in its basket. It is widely diversified across each component with none of these accounting for more than 2.2% share. However, the product is slightly skewed toward financials at about 37%.
The ETF has accumulated $25.4 million while it trades in light volumes of around 30,000 shares per day. Expense ratio comes in at 0.85%. The fund advanced about 16.8% on July 9.
Deutsche X-trackers Harvest CSI 300 China A-Shares Fund ( ASHR )
The fund provides exposure to the large-cap segment of China A-share equity market by tracking the CSI 300 Index. The 306-stock portfolio has accumulated $821 million in AUM and sees solid trading volumes of about 3 million shares a day on average.
The fund is heavy on financial stocks (41.93%) followed by industrials (16.82%) and consumer discretionary (10%) stocks. Materials and IT also have decent share of over 6% each. The product charges about 80 bps in fees per year from investors and soared over 20% on July 9. The fund also gained about 0.2% after hours.
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MKT VEC-CHINAMC (CNXT): ETF Research Reports
DEUTS-XT HV CS3 (ASHR): ETF Research Reports
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
