Investors pour into China-focused ETFs

By Suzanne McGee
(Reuters) – Investors poured $5.2 billion into U.S.-based exchange-traded funds (ETFs) targeting Chinese markets last week, coinciding with mainland China’s market closure for a national holiday. This optimism is sparked by a recent stimulus package announced by Beijing, featuring interest rate cuts and bank liquidity changes, leading to the largest one-day gain in Chinese stocks since 2008 on Sept. 30.

As China resumes work post-holiday, officials from the country's top economic planning agency are expected to discuss measures to boost economic growth. The recent influx stands out against a backdrop of average weekly outflows of $83 million in 2024 and $27 million in 2023, according to Morningstar data.

Michael Reynolds, VP of investment strategy at Glenmede Trust, noted, "The market has been waiting for a credible commitment from China to get its economy going again. Now we need to see follow-through."

In late September, China’s Securities Regulatory Commission announced plans to quickly approve new ETFs tracking the “Star Market,” aimed at technology companies, thus directing more investments into domestic ETFs.

Jonathan Krane, CEO of KraneShares, reported that his flagship ETF attracted $1.39 billion last week, bouncing back year-to-date after prior declines. The $8.3 billion KraneShares ETF was among numerous China-focused funds that recorded substantial returns, outperforming over 3,000 U.S. ETFs.

Despite this, Krane believes this surge is just the beginning, as many investors remain underexposed to Chinese equities following significant losses earlier in the year due to concerns like real estate slumps and geopolitical tensions.

The majority of new funds have gone into large-cap China ETFs, such as BlackRock's iShares China Large-Cap ETF, which saw $2.7 billion in inflows last week.

To maintain this momentum, experts like Jason Hsu from Rayliant Global Advisors stress that Beijing needs to introduce clear and effective reforms.

Roundhill Investments launched the Roundhill China Dragons ETF last week, which focuses on nine major Chinese tech companies and drew $35 million within its first two days of trading, indicating a shift in investor sentiment.

"We figured that at some point soon, the tide would turn and China once again would be investable," said Roundhill CEO Dave Mazza.