These China ETFs Hardly Felt Any Coronavirus Pain in Q1

The first quarter of 2020 marked the worst one for Wall Street since the fourth quarter of 2008, for European stocks since 2002 and for emerging markets since 2008 due to the coronavirus outbreak. But the epicenter of the pandemic, China stocks beat Wall Street surprisingly, having lost only 11% in dollar terms. Notably, the S&P 500 and the Dow Jones lost about 20% and 23.2%, respectively in Q1.

Note that the epidemic began in China in January leading to lockdowns in cities. The crisis almost dragged through the quarter, unlike in other countries where it started from late February or March. Still, several China stocks and ETFs lost very little in the quarter.

How China ETFs Held Up

Several China stocks suffered a great deal due to trade tensions in the past two years, which probably dragged valuation down to levels which appear lucrative to investors. Apart from compelling valuations, policy easing is helping the space. The government and central banks of China have left no stone unturned to fight the outbreak.

The People's Bank of China (“PBOC”) lowered the interest rate on its medium-term lending on Feb 17. In order to infuse liquidity into the financial system, China's central bank injected 100 billion yuan (or around US$14.33 billion) into the market in mid-February.

China's securities commission announced some changes to the refinancing rules for listed companies, mainly to enhance liquidity largely for small- and medium-cap stocks (read: Can China ETFs Gain on New Stimulus to Combat Covid-19?).

The PBOC in fact opted for policy easing at the start of this year and injected about $115 billion into the country’s financial system by slashing RRR for commercial lenders across the board by 50 basis points.

Apart from these measures, signing of the phase-one trade deal benefited China ETFs. Investors should note that after struggling for almost two years, the United States and China struck a preliminary trade deal on Jan 13.

Major index providers are raising the weights of China A-shares in their global benchmarks, which probably led to inflows of billions of dollars into those stocks. Global index compiler MSCI Inc. increased the weights of China A shares in certain indexes by hiking the inclusion factor to 20% from 15% last November.

If these were not enough, Shanghai surpassed Hong Kong as the world’s top initial public offering (IPO) destination in the first quarter. The Shanghai Stock Exchange topped with $7.27 billion of IPO proceeds in the quarter, while Nasdaq came third with $5.2 billion in proceeds.

Plus, to close the quarter, China's central bank unexpectedly cut the key rate by 20 basis points, the largest in nearly five years, in order to infuse $10 billion into the money markets.

Winning ETFs in Focus

Against this backdrop, we highlight a few China ETFs that have actually gained/lost little in the quarter.

Currency Yuan

Market Vectors-Renminbi/USD ETN (CNY (up 2.9% YTD) and WisdomTree Chinese Yuan Fund CYB (down 1.3%) were two winners while many emerging market currencies were affected badly in the quarter. China’s central bank eased way less aggressively than its peers, which probably worked in favor of the currency.

Bonds

VanEck Vectors ChinaAMC China Bond ETF CBON(Down 0.4% YTD) and KraneShares E Fund China Commercial Paper ETF KCNY (down 3.4%) got some support from strength in the currency.

Healthcare

Coronavirus definitely helped healthcare and biotech ETFs stand out. KraneShares MSCI All China Health Care Index ETF KURE (down 0.5%) and Global X MSCI China Health Care ETF CHIH (down 4.1%) being the gainers.

Consumer Staples

This was yet another high-demand sector during the time of lockdown. Global X MSCI Consumer Staples ETF CHIS lost just 5.2%.

Technology

KraneShares CSI China Internet ETF KWEB (down 9.3% YTD) and Global X MSCI China Information Technology ETF CHIK (down 10.9% YTD) also outperformed the S&P 500 in the first quarter.

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KraneShares CSI China Internet ETF (KWEB): ETF Research Reports
 
WisdomTree Chinese Yuan Strategy ETF (CYB): ETF Research Reports
 
VanEck Vectors ChinaAMC China Bond ETF (CBON): ETF Research Reports
 
KraneShares E Fund China Commercial Paper ETF (KCNY): ETF Research Reports
 
KraneShares MSCI All China Health Care Index ETF (KURE): ETF Research Reports
 
Global X MSCI China Health Care ETF (CHIH): ETF Research Reports
 
Global X MSCI China Information Technology ETF (CHIK): ETF Research Reports
 
Global X MSCI China Consumer Staples ETF (CHIS): ETF Research Reports
 
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