Surge in Chinese stocks revitalizes China ETFs

Still, several investors continue to caution against China's COVID-19 zero-tolerance stance

Surge in Chinese stocks revitalizes China ETFs

As investors returned to the burgeoning Asian economy in the wake of the COVID-lockdown economic shock and regulatory crackdowns, China country-specific exchange traded funds are on a tear, with Chinese stocks posting their greatest monthly increase in almost two years.

According to ETF Trends, VanEck Vectors ChinaAMC SME-ChiNext ETF (CNXT), KraneShares Bosera MSCI China A Share ETF (KBA), and Xtrackers CSI 300 China A-Shares ETF (ASHR) all saw gains during the last month of 22.5%, 15.7%, and 13.3%, respectively.

Meanwhile, the Financial Times reported that the CSI 300 index of stocks listed in Shanghai and Shenzhen increased by more than 8% in June, putting the benchmark on track for its best one-month run since July 2020, when foreign investors turned to China after it emerged from its first COVID-19 lockdowns as the rest of the world was shutting down.

The first significant easing of travel restrictions since authorities struggled to contain outbreaks in major cities Shanghai and Beijing benefited Chinese shares. Beijing cut the two-week quarantine requirement for foreign arrivals to one week.

“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.

In addition, at a time when central banks around the world were tightening monetary policy to combat increasing inflation levels that could lead to an economic recession, foreign investors were drawn to China's more accommodating monetary policies.

Nevertheless, several continued to caution against China's COVID-19 zero-tolerance policy.

In the case of China, Goldman Sachs analysts cautioned that the country's zero-COVID policy was “unlikely to fundamentally change in the near term.”

The country's tech industry, which has been suffering as a result of heightened regulatory scrutiny, has received special attention from regulators as they have indicated that they may relax up on their crackdowns.

Chinese IT groups had been "very much sold down before the buying came in from the north," according to Louis Tse, managing director of Hong Kong-based brokerage Wealthy Securities.