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2 China ETFs Hitting All-Time Highs - ETF News And Commentary

Zacks Equity Research

Investing in China is no less than solving a riddle. The economy continues to come up with offhand economic data for quite some time and investors are not tired of pouring their money into China ETFs on hopes of intensified policy easing. Chinese stocks soared to a seven-year high recently as bets on aggressive stimulus heightened after the lackluster manufacturing production data.

Across the board, China A-Shares have truly rocked the market this year with Market Vectors ChinaAMC SME-ChiNext ETF (CNXT) returning over 100% in the year-to-date frame (as of May 22. 2015). Investors’ optimism is not baseless either. The People's Bank of China (PBOC) cut rates thrice in six months with the latest one declared on May 10.

China A-Shares started 2015 on a high and staged an astounding rally in Q1. Chinese A-Shares track stocks listed on the Shanghai or Shenzhen exchanges, especially the small-cap ones, stand for true domestic opportunities. The space was previously tightly held by and limited to domestic investors. Now, it is capitalizing on a new link between Hong Kong and the mainland (read: China A-Shares ETF from CSOP Hits the Market).

Moreover, the Chinese government put more stress to shore up the rural sector and spur domestic demand. In the same vein, the PBOC recently offered an additional one-percentage point cut to rural financial institutions and a two-percentage point cut to the rural policy bank. All these have driven investors toward the China A-shares space which is hardly looking back from its northward ascent this year.

A sudden pause was noticed at the onset of Q2. Overpricing concerns seem to be the reason for this abrupt halt as investors switched to Chinese stocks listed in Hong Kong indices citing tempting valuation. However, the halt was momentary as China A-shares ETFs once again roared back (read: Is China A-Shares ETFs Rally Over?).

In addition, FTSE Russell -- a sought-after global index provider -- recently declared that it would start ‘two transitional indexes that include China A shares’. This information should energize the A-shares in the coming days. Though the entire space is doing well lately, we highlight below two ETFs which hit all-time highs on May 22 and are also leading the China equity ETF space.

db X-trackers Harvest CSI 500 China-A Shares Small Cap Fund (ASHS)

This fund provides direct exposure to the small-cap segment of the China A-share equity market (Shanghai and Shenzhen stock exchanges) by tracking the China Securities 500 Index. Holding 506 stocks in its basket, the product is widely spread out across components with each accounting for less than 1.59% share (read: China ETFs: Bull or Bear in the Year of the Goat?).

However, industrials take the top position from a sector look with one-fourth allocation while Information Technology (15.11%), Consumer Discretionary (14.28%) and Materials (13.24%) take the next three spots. The product has amassed $53.7 million in AUM and sees lower trading volume of about 70,000 shares a day on average.

It charges about 80 bps in fees per year from investors and surged about 18% in the last four weeks (as of May 26, 2015). It also added 14% in the last five trading sessions. The fund hit its all-time high of $66.01 in the trading session of May 22. So far this year, the fund is up over 85%. The fund has a Zacks ETF Rank of 3 or ‘Hold’ rating.

Market Vectors ChinaAMC SME-ChiNext ETF (CNXT)

This fund looks to track the SME-ChiNext 100 index which seeks to track 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 5.65% share (read: 3 Best Performing ETF Sectors of Q1 2015).

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 $74.1 million in AUM and sees moderate trading volume of about 100,000 shares a day on average. It charges about 66 bps in fees per year from investors and surged about 23.7% in the last four-week period (as of May 26, 2015). The fund added over 13% in the last five trading sessions and hit its all-time high of $60.01 recently.
 
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