In June, China stocks turned in their best month in a year and a half, one of the few bright spots amid the global equities slump, the Wall Street Journal reported Wednesday. The stocks benefited as fears of regulatory pressure subsided.
The easing pressures on Chinese stocks, especially those in the tech sector, had investors pouring money into China ETFs, it said. The two largest China ETFs, iShares MSCI China ETF (NASDAQ:MCHI) and KraneShares CSI China Internet ETF (NYSEARCA:KWEB), climbed 12% during the month vs. the S&P 500’s 8.4% decline.
Each of the two ETFs manage more than $8B in assets, making up more than half of the $31B in such funds, according to Refinitiv Lipper. Both pulled in more than $1B in inflows last month, the WSJ said.
It’s too early to tell if the China ETFs hit bottom in March when investors feared U.S.-listed shares of Chinese companies would be delisted and COVID lockdowns in China would create too much risk. Since then China equities have rebounded after Vice Premier Liu He calmed fears with a market-friendly speech.
Risk-averse investors, though, may do well to steer wide of the sector. China internet stocks are almost twice as volatile as the S&P 500 over the past year, Todd Sohn, technical & ETF strategist at Strategas Securities told the WSJ. “It’s hard to view China as a ‘buy and hold’ strategy with its volatility profile,” he said.
In midday Wednesday trading iShares MSCI China ETF (MCHI) is dropping 2.1%, while KraneShares CSI China Internet ETF (KWEB) is falling 4.6%. In the past three months, including Wednesday’s trading, MCHI has only risen 1.1% and KWEB has gained 6.5%, while the S&P 500 (SP500) has dropped 14% as seen in the chart below.
SA’s Quant rating has a Hold rating on KWEB and on MCHI, giving both poor marks on risk.
Meanwhile, SA contributor Chetan Woodun see value in KWEB for diversification and growth purposes