China ETFs report high returns on recovering equity market

gettyimagesbank

By Lee Kyung-min

Exchange-traded funds (ETFs) designed to track the performance of the Chinese equity market have reported solid gains over the past month on the back of strong signs of recovery in the world's second-largest economy, data showed Monday.

According to financial service data provider FN Guide, gains made via ETFs invested in China's stock market averaged 13.37 percent as of July 24, far outperforming their peers in not only emerging economies but also advanced ones.

The month-on-month gain of investments in the equity market in Brazil, one of the top-performing stock markets, was 10.26 percent. The figure for India was 7.41 percent.

Advanced economies saw much lower results. The figure was 5.14 percent for the market in North America, whereas the European regions reported 4.08 percent. Japan reported a 0.67 loss in the same period.

The top-performing fund was TIGER China CSI 300 from Mirae Asset Global Investment with a gain of 29.81 percent. Other similar funds from the firm logged gains of between 19.48 percent 29.64 percent. Many of their funds were set up to track the performance of the top 300 companies listed on the Shanghai and Shenzhen stock exchanges.

The high returns followed strong gains for China's stock market that exited a years-long underperformance.

Shanghai Stock Exchange (SSE) Composite Index and Shenzhen (SZSE) Composite Index jumped 7.29 percent and 9.79 percent over the past month, respectively, a figure that dwarfs ones by the S&P 500 Index and Nasdaq Composite whose respective gains were 4.28 percent and 3.46 percent over the same period.

Driving the profit margin higher was the leveraged nature of the funds, meaning investors put money to bet bigger and seek a gain of up to 150 percent of their initial investments.

Buoyed by recent reports of high returns are the soaring numbers of people buying Chinese stocks in the past month.

Data from the Korea Security Depository (KSD) showed Koreans net bought $202.7 million (244.1 billion won) in July, over twice the $88.3 million from a month earlier.

But investor caution is required given the much-volatile market can crash at the slightest sign of panic triggered by any news that escalates the drawn-out trade tension between the U.S. and China, according to market analysts.

The SSE index and SZSE indices fell more than 2 percent and 4 percent following news about the U.S. ordering the closure of the Chinese consulate in Houston, which goes to show the short-term high returns were closely tied to what essentially remains a chain of uncertain events. "Investment is about taking risks, and losses will come just as easy as gains,” said Standard Chartered Bank Korea investment strategist Hong Dong-hee.