Hong Kong ETFs Provide Investment Bridge Into China

Offshore investors are rallying behind China’s undervalued equities by plowing billions of dollars into Hong Kong’s exchange-traded funds denominated in the yuan currency.

As a scheme to allow more foreign inflows into Chinese stocks draws near, fund managers are wagering on a sustained rebound for the Shanghai Composite Index .SSEC after a prolonged four-year slump has opened up opportunities to buy on the cheap.

“There were some switchings from markets where fund managers had gained positive returns to places that they thought there could be more opportunities, and China was be one of them,” said Jackie Choy, an ETF strategist at researcher Morningstar.

 
ETFs under the Renminbi Qualified Foreign Institutional Investor (RQFII) posted significant net inflows of 8.2 billion yuan ($1.33 billion) last month, the highest since December 2012 and nearly doubling from June, according to Morningstar data.

The majority of the net inflows went into the CSOP FTSE China A50 ETF (82822.HK)(2822.HK), which attracted an estimated 6.8 billion yuan, followed by the Bosera FTSE China A50 Index ETF (82832.HK)(2832.HK), which drew an estimated 2.4 billion yuan.

A strengthening of the Chinese currency, which has gained 2 percent from 18-month lows hit in April this year, and a recovering economy, have also helped draw foreigners to these ETFs, analysts say.

Launched in 2011, RQFII enables financial institutions to use offshore yuan to invest in the mainland’s securities markets.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza