China ETFs Have Been Gaining Momentum

China country-specific exchange traded funds are having a great run, with Chinese equities enjoying their best monthly gain in almost two years, as investors turned back into the emerging Asian economy, following the COVID-lockdown economic shock and regulatory crackdowns.

Over the past month, the VanEck Vectors ChinaAMC SME-ChiNext ETF (CNXT) increased 22.5%, the KraneShares Bosera MSCI China A Share ETF (KBA) rose 15.7%, and the Xtrackers CSI 300 China A-Shares ETF (ASHR) increased 13.3%

The CSI 300 index of Shanghai- and Shenzhen-listed stocks jumped over 8% in June, putting the benchmark on pace for its best one-month run since July 2020 when global investors turned to China after the country exited its first COVID-19 lockdowns while the rest of the world was shutting down, the Financial Times reported.

Chinese shares also found support after Beijing reduced quarantine requirements for international arrivals from two weeks to one, marking the first significant reduction to travel restrictions since authorities wrestled control over outbreaks in major cities Shanghai and Beijing.

“As a signal about the balance between zero-COVID and economic growth, you can see there’s a little more concern [in Beijing]about the economy,” Frank Benzimra, head of Asia equity strategy at Société Générale, told the Financial Times of the government’s move to ease quarantine restrictions.

Furthermore, global investors were attracted to China’s more accommodative monetary policies at a time when global central banks were tightening monetary policies to combat rising inflation levels, which could trigger an economic recession.

Nevertheless, some still warned of China’s zero-tolerance COVID-19 policy. For instance, analysts at Goldman Sachs warned that China’s zero-COVID policy was “unlikely to fundamentally change in the near term”.

Regulators have also signaled that they will ease back on crackdowns, especially on the country’s tech sector which has been reeling in the wake of unprecedented regulatory scrutiny.

Louis Tse, managing director at Hong Kong-based brokerage Wealthy Securities, argued that Chinese tech groups had been “very much sold down before the buying came in from the north”.

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