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China Stimulus Drives Billions Into ETFs on Renewed Optimism

(Bloomberg)

(Bloomberg) -- The world-beating rally in Chinese stocks is driving record inflows into exchange-traded funds that buy the nation’s stocks, with investors plowing billions across five leading funds amid optimism from Beijing’s stimulus measures.

Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $5.96 billion in the week ended Oct. 4 — the biggest weekly inflow in over a year, according to data compiled by Bloomberg. Five leading ETFs that invest in Chinese stocks received about $4.9 billion in cash, the most on record. 

The iShares China Large-Cap ETF saw the biggest inflow, totaling $3.5 billion last week alone, while the KraneShares CSI China Internet Fund received over $1.4 billion — all hitting records as investors return in waves to the Chinese equity market. Other funds that also saw inflows were Direxion Daily FTSE China Bull 3X Shares and iShares MSCI China ETF, of $801 million and $340 million, respectively.

“The challenge to reignite growth in the Chinese economy, which means energising the consumer, is a very difficult one,” said Hasnain Malik, a strategist at Tellimer in Dubai. “But that may not prevent an equity market rally persisting, given the starting point of cheap valuation and sceptical consensus expectations.”

Chinese shares have skyrocketed as a string of economic, financial and market-support measures reinvigorated investor confidence over the world’s second largest economy. The wave of stimulus over the past few weeks have led the Hang Seng China Enterprises Index, which comprises Chinese stocks listed in Hong Kong, to jump more than 35% over the past month, making it the best performer among more than 90 global equity gauges tracked by Bloomberg.

Stimulus announced by Beijing has included interest-rate cuts, freeing-up of cash at banks, billions of dollars of liquidity support for stocks, and a vow to end the long-term slide in property prices. Now, all eyes will turn to Tuesday as Chinese markets are expected to reopen after a week-long holiday in what’s expected to be a frantic trading session. 

On that same day, the China National Development and Reform Commission will host a press conference Tuesday to discuss implementation of a package of incremental economic policies. This new package of measures may give China’s equity market another boost, according to Malik. 

While optimism reins, there are some portions of the market that remain skeptic about the latest rally, waiting for Beijing to back up its stimulus pledges with real cash. The Direxion Daily FTSE China Bear 3X Shares, which seeks to get returns from the opposite performance of the FTSE China 50 Index, attracted $208 million in inflows — its biggest weekly inflow on record.

“The skepticism on China is so deep-rooted, in some respects correctly so, that there will be those who see this rally as a false dawn,” Malik said. “The point though is that is has already been steep enough to cause pain for those underweight or entirely out of the market.”

  • Stock ETFs expanded by $6.09 billion.
  • Bond funds fell by $131.7 million.
  • Total assets rose to $385.6 billion from $374.7 billion.
  • The MSCI Emerging Markets Index closed up 0.4 percent from the previous week at 1,179.34 points.
  • China/Hong Kong had the biggest inflow, of $5.71 billion, led by iShares China Large-Cap.
  • Mexico had the biggest outflow, of $72.2 million, following withdrawals from iShares MSCI Mexico.

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Following are tables detailing net flows for emerging-market ETFs in US dollars. The data include the holdings-weighted allocations from multi-country funds, as well as country-specific funds. Latest and historic flows are allocated using latest fund weightings (figures in USD millions unless otherwise stated):

Regional Summary

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Americas

Asia Pacific

Europe, Middle East & Africa

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