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Are investors in China ETFs shifting to new economy bets?

While global investors pulled out of China ETFs in 2017, many bought the Kraneshares CSI China Internet ETF, which saw the biggest inflows in this category, according to data from Morningstar.

Kraneshares, an ETF provider operating in the US, has benefitted most from investor interest in Chinese equities, even while many pulled out of the sector in the run-up to MSCI’s decision to include China A-shares in its emerging market equities.

In the first five months of this year, the Kraneshares CSI China Internet ETF took in $186m in net new inflows, based on Morningstar estimates.

The internet ETF’s AUM is $473m, making it the most successful product in the category, globally.

Most of the inflows − $175m − came in May. The internet-themed ETF, whose top holdings are Tencent, Alibaba and, returned 46% between the low of $34.42 in December and the high of $50.18 in early June. 

By comparison, the iShares MSCI China ETF, which has broad based industry exposure, returned 30% during this period, but investors redeemed $170m from it.

One possibility is that investors cooled on old economy stocks and moved some money into ETFs with more new economy exposure, despite Blackrock’s active fund manager Andrew Swan advising the opposite

Another iShares ETF, the China large-cap product, with half its sector exposure in financials, had a $113m net outflow. 

According to commentators, the inclusion of China A-shares in MSCI’s emerging market indices will have little immediate effect on China’s equity market itself or on the index-based products, which have been given ample time to adjust their portfolios. However, it underscores the growing importance of China’s equity market for investors around the globe.

2017 outflows

China-themed ETFs as a global category had $1.6bn in net outflows in the first five months of 2017. Net assets stood at $27.8bn globally at the end of May.

The biggest net outflows globally were from Hong Kong-domiciled ETFs. The territory’s investors took out $1.4bn. The top three China ETF providers in Hong Kong, iShares, Hang Seng and CSOP had combined net losses of $1.5bn.

Nonetheless, the aggregate AUM of China ETFs domiciled in Hong Kong is the largest globally − $14.6bn or roughly half the global total.


AUM and YTD net flows in China equity ETFs, by domicile

 Data: Morningstar, as of 31 May 2017, in US dollars


Part of the Mark Allen Group.