Industry Updates

Investors hunt for value in China ETFs amid regulatory crackdown

KWEB saw $203m inflows last week

Tom Eckett

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ETF investors appear unfazed by the Chinese government’s regulatory crackdown on private companies as they piled into China and wider emerging market ETFs last week.

According to data from Ultumus, the KraneShares CSI China Internet UCITS ETF (KWEB) saw $203m inflows in the week to 10 September, the fifth-highest across all European-listed ETFs, taking its overall assets under management (AUM) to $661m.

Meanwhile, its US-listed counterpart, the KraneShares CSI China Internet ETF (KWEB) has seen $4.1bn inflows over the past two months highlighting the demand for Chinese tech equities.

There were also positive flows for emerging market ETFs with the HSBC MSCI Emerging Markets UCITS ETF (HMEF) and the iShares MSCI EM SRI UCITS ETF (SUSM) seeing inflows of $190m and $92m, respectively.

Briegel Leitao, associate analyst, passive strategies, at Morningstar, explained the inflows were a value play on Chinese equities following the sell-off.

“The fall appears to be driven by a series of culturally-oriented crackdowns by the Chinese Communist Party (CCP),” Leitao continued. “I am yet to see any bull-market outlook that would drive the investment case, other than valuations being relatively attractive.”

Over the past few months, the government has introduced a string of measures that have mainly been aimed at its tech sector in areas such as private tutoring companies.

The recent moves by the Chinese government show it is not only state-owned enterprises (SOEs) that are beholden to regulatory and political pressure.

This has spooked investors with ETFs such as the Rize Education Tech and Digital Learning UCITS ETF (LERN), which has a large weighting to China, down 41.4% over the past six months, as at 14 September.

Elsewhere, investors continued to pile into China bond ETFs including the iShares China CNY Bond UCITS ETF (CNYB) which saw $294m inflows last week taking its overall net flows this year to a massive $5.9bn.

While the iShares China CNY Govt Bond UCITS ETF (CGBI) crossed the $1bn AUM barrier last week just four months after launching in April with $212m inflows.

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