Exchange-traded fund (ETF) investors are showing little confidence that the world-beating rally in China’s domestic stock market will last.
Traders pulled about US$845 million from the CSOP FTSE China A50 ETF in the two weeks through Friday last week, the biggest outflow since the US$5.7 billion fund was started in 2012, according to data compiled by Bloomberg.
The US$9.7 billion iShares FTSE A50 China Index ETF lost US$585 million last week, the most since 2009, as the Shanghai Composite Index rose to a three-year high.
Investors in the two largest ETFs tracking Chinese shares are retreating after the Shanghai gauge jumped 11 percent in the past month, the top performance among 93 benchmark indices tracked by Bloomberg.
Chinese stocks are valued at the biggest premium over their Hong Kong counterparts in 16 months after China opened up its market with the Shanghai bourse link and the Chinese central bank unexpectedly cut interest rates to combat the weakest expansion since 1990.
“We’ve seen signs of slower economic growth from China in recent weeks,” Todd Rosenbluth, director of mutual-fund research for S&P Capital IQ in New York, said by telephone on Monday. “Investors want to reduce their exposure.”
The Shanghai Composite fell for the first time in eight days yesterday, losing 0.1 percent after a gauge of Chinese manufacturing dropped last month to its lowest level since March.
The stock benchmark advanced 7.9 percent last week, the most since October 2010, after the central bank cut borrowing costs for the first time in two years.
The Shanghai index climbed 3.1 percent at the close yesterday, while the Hang Seng China Enterprises Index of Hong Kong-traded shares gained 2.8 percent.
Overseas investors had used the two Hong Kong-listed ETFs to gain exposure to the Chinese market since April, when the Chinese government unveiled a plan to give anyone with a Hong Kong brokerage account the ability to trade Shanghai shares.
The Shanghai index has gained 28 percent since then, pushing the premium for shares of dual-listed companies to 10 percent over their Hong Kong peers yesterday. That is the biggest gap since July last year and a reversal from four months ago, when Chinese stocks traded at a discount of 11 percent, data compiled by Hang Seng and Bloomberg showed.
Investors started withdrawing money from the two Chinese ETFs in mid-October after adding a combined US$3.5 billion over the previous four months.
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