New | Investors use ETFs as a short cut to bet on Chinese shares

The turnover in exchange traded funds (ETFs) of A-shares and H-shares vaulted higher substantially in the rally which hoisted stocks to a 7-year peak as global investors used the index funds as a short cut to bet on the stock markets in Hong Kong and mainland China.

Marco Montanari, the head of passive asset management for Asia Pacific of Deutsche Asset & Wealth Management, which has A-shares and H-shares ETFs listed in Hong Kong, Singapore, London and New York, said investors rushed to trade the ETFs over the recent rally in the past two weeks.

“We have seen investors in Hong Kong redeem the A-shares ETF and subscribe the H-shares ETF. In a sense, they are using the ETF as a quick way to sell the A-shares and to buy the H-shares to take advantage of the price gap between the two as the H-shares still trading at a discount of their A-share counterparts,” Montanari said.

Turnover of the New York A-shares ETF, for example, hit US$149.36 million last Friday (April 17), some two-and-a-half times the turnover the preceding Friday (April 10) of US$57.99 million.

A-shares are Chinese stocks listed in Shanghai or Shenzhen while H-shares are those Chinese stocks listed in Hong Kong. ETFs are funds that track the performance of the index. Investors who purchase a unit of the funds are putting their money in a basket of these stocks.

“In the US and Europe, however, investors are trading with a different pattern. They do not trade to do arbitrage between the A-shares and H-shares. Rather, they trade the ETFs as a simple way to invest in the Chinese stocks as they are not familiar with individual Chinese stocks as Hong Kong investors,” he said.