Despite China’s recent indications of bolstering economic support during the nation’s strenuous recovery from the pandemic, investors in US-listed Chinese ETFs have largely disregarded the pledge, reacting with indifference.
Information from VettaFi’s database illustrates this unexpected response, as only one ETF attracted significant inflows in the wake of the Chinese government’s announcement.
What should have stirred excitement in the markets appears to have done little more than prompt cautious and tactical moves.
A cold reception to China’s economic pledge
Last week’s signal from Beijing about potential measures to support the economy seemingly fell on deaf ears among US-based Chinese ETF holders. The only significant attraction of funds came to the KraneShares CSI China Internet ETF (KWEB), receiving an inflow of $136.1 million.
Even more intriguing is that the ETF ranking second in inflows was the Direxion Daily FTSE China Bear 3x Shares (YANG) ETF, an instrument that bets against the Chinese market, attracting $22.3 million.
Of the 57 China-focused US-listed ETFs in VettaFi’s database, most experienced no inflows at all, and 12 saw outflows. The iShares MSCI China ETF (MCHI) suffered the most, with a withdrawal of $47.6 million in the week leading up to July 31.
The hesitation and lack of confidence contrast sharply with China’s attempts to portray an image of control and planned growth.
Philip Wool, managing director and head of research at Rayliant Global Advisors, underscored the uncertainty and the risks associated with relying on Chinese policy meetings.
Wool hinted at understanding Beijing’s thinking process rather than expecting a direct catalyst. He observed that although China’s authorities recognize domestic demand issues, there is no expectation of a stimulus akin to what was offered during the global financial crisis.
An uncertain future for Chinese investments
The perceived riskiness of investing in China has become a pressing concern for investors. Events such as the tech crackdown in China and threats of delisting US-listed Chinese entities have led to a belief among many that China is essentially “uninvestable.”
Kevin Carter, founder and chief investment officer of EMQQ The Emerging Markets Internet & Ecommerce ETF, acknowledged the shocks but remained optimistic about China’s technology sector. However, his view is increasingly rare among his peers.
Brendan Ahern, chief investment officer at Krane Funds Advisors, lamented that the positive messaging from the politburo meeting should have been an opportunity for investors to increase their China weighting.
Ahern’s subtle frustration is telling of a broader sentiment that global investors are not ready to align with China’s strategies, reflecting an underlying skepticism.
The lackluster response from US-based Chinese ETF holders to China’s growth commitment tells a cautionary tale. It reveals a significant disconnect between the promising picture painted by Chinese leadership and the reality perceived by foreign investors.
The investment landscape is filled with mistrust and uncertainty, with investors evidently wary of Beijing’s pledges and the integrity of Chinese markets.
This sentiment may indicate a long-term challenge for China’s financial integration with the global economy and its desire to promote a positive image overseas.
Whether or not China’s leadership can address these concerns remains an open question, but the current disconnect suggests a long road ahead.
