Even with some recent strength, the Shanghai Composite is still down 22.5% over the past month, but that decline only tells part of the story.
Amid the most viscous decline in seven years for stocks trading on China’s mainland, scores of Chinese companies announced trading halts to guard against further declines. Those trading halts have prompted a temporary shift in strategy for the KraneShares Bosera MSCI China A ETF (KBA) .
KBA “ does not currently expect to continue to replicate” the MSCI benchmark, according to last week’s notice filed with the U.S. Securities and Exchange Commission. Instead, the fund will use a sampling strategy that gives its co-adviser, Bosera Asset Management (International) of Shenzhen, the flexibility to select members of the index “that are not subject to trading halts and are relatively liquid,” Miles Weiss reports for Bloomberg, citing an SEC filing.
The $19.2 million KBA, which debuted in March 2014, is the only U.S.-listed A-shares ETF tracking an index from MSCI.
“KBA tracks the MSCI China A International Index: a free-float adjusted market capitalization weighted index that is designed to track the equity market performance of large-cap and mid-cap Chinese securities listed on the Shanghai and Shenzhen Stock Exchanges. The Index is based on the concept of the integrated MSCI China equity universe with mainland Chinese securities included,” according to KBA’s homepage.
KBA’s co-adviser, Bosera Asset Management, is looking to avoid halted Chinese names while embracing more liquid stocks, according to Bloomberg. Just last week, 1,331 companies, with a combined value of about 40% of the country’s market, have stopped trading on China’s stock exchange, reports Tracy Alloway for Bloomberg.
Those trading halts sent China A-shares ETFs that track mainland stocks are now trading at a wide discount to their net asset value. ETFs try to reflect the movement of their net asset value, or combined value of all securities in an ETF’s portfolio divided by the number of ETF shares outstanding, as market makers or authorized participants create or redeem ETF shares by buying or selling baskets of underlying securities for ETFs.
Since ETFs trade like any other stock on an exchange, the ETF’s price can fluctuate throughout the day. ETFs typically update their underlying trading value, calculating the approximate NAV every 15 seconds throughout the trading day. [A-Shares ETFs Trading at Steep NAV Discounts]
Deutsche Asset & Wealth Management, the issuer behind the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ASHR) , the largest U.S.-listed A-shares ETF, and the Deutsche X-trackers Harvest CSI 500 China A-Shares Small Cap Fund (ASHS) , told Bloomberg ASHR seeks to fully replicate the CSI 300 Index whenever possible. [Shorts Burned by A-Shares Rally]
KraneShares Bosera MSCI China A ETF