Soaring Chinese ETFs in the Winged Stock Market

[Asia Economy Reporter Eunmo Koo] The Shanghai Composite Index recently surpassed the 3,400 mark, recovering to pre-COVID-19 levels. With the rise of the Chinese stock market, domestic exchange-traded funds (ETFs) tracking the China market index are also gaining momentum.

According to the Korea Exchange on the 9th, KINDEX China Mainland CSI300 Leverage (Synthetic) managed by Korea Investment Trust Management recorded a 34.2% return based on closing prices up to the previous day this month. During the same period, TIGER China CSI300 Leverage (Synthetic) also rose every day without fail, achieving a 33.5% increase and a return in the 30% range.

Additionally, ETFs tracking Chinese indices such as TIGER China CSI300 (18.0%), KBSTAR China Mainland Large Cap CSI100 (16.2%), KODEX China Mainland CSI300 (15.4%), KINDEX China Mainland CSI300 (15.3%), and KBSTAR China MSCI China Futures (H) (12.8%) showed double-digit gains, significantly outperforming the KOSPI’s rise of 2.4% during the same period.

General public funds investing in the Chinese market also showed strong performance. According to fund information provider FnGuide, the average one-week return of 175 China funds with assets over 1 billion KRW was 10.6%, surpassing the average returns of domestic equity funds (2.8%) and overseas equity funds (6.2%). Among individual funds, Samsung China Mainland Leverage Fund posted the highest return at 23.4%, followed by Mirae Asset China A Leverage 1.5 Fund (23.4%) and KB Mainland A-Share Leverage Fund (22.1%), all achieving returns in the 20% range.

The Chinese stock market has shown strength this month, with the Shanghai Composite Index rising 14.0% (from 2,984.67 to 3,403.44), surpassing the 3,400 level. On the previous day, the Shanghai Composite Index closed at 3,403.44, up 58.10 points (1.74%) from the day before, continuing a seven-trading-day consecutive rise. The expansion of financial reforms, such as the implementation of the IPO registration system for the ChiNext market, which is centered on IT technology stocks, is analyzed to have boosted the Shanghai Composite Index and CSI300 Index, which have a high proportion of financial stocks.

On the 3rd, the Shenzhen Stock Exchange announced guidelines for the ChiNext 'IPO registration system.' Unlike the previous IPO approval system, which required review by the China Securities Regulatory Commission and took over a year to list, the registration system is expected to take as little as about three weeks. Yeonju Sung, a researcher at Shin Young Securities, explained, "The pilot implementation of the ChiNext IPO registration system is scheduled soon, and the volume of IPOs through ChiNext is expected to increase significantly within the year. With increased inflows from foreign and individual investors, capital supply is expanding, limiting supply-demand pressure. Rather, the increase in stock market trading volume is expected to benefit securities stocks."

Recent gains in the Chinese market appear to be led by overseas investors’ capital. Hanjung Sook, a researcher at Mirae Asset Daewoo, explained, "Despite increased US sanctions pressure on the technology sector following the enactment of the Hong Kong National Security Law, China’s domestic policies have been strengthened. Additionally, US President Donald Trump announced that there would be no capital controls on China, alleviating concerns about capital outflow pressure." She further analyzed, "The rise in securities stocks driven by expectations of improved earnings due to increased IPO demand led the financial sector’s gains."

Although the Shanghai Composite Index breaking its high since 2018 makes the stock price level somewhat burdensome, the upward trend is expected to continue until the earnings season. Researcher Sung explained, "While demand for funds such as ChiNext IPO volume is increasing, foreign investors’ liquidity supply continues, and inflows from individual investors are expanding through public fund issuance and increased margin trading." However, considering political risks from Hong Kong, the US, and others, caution is advised regarding increased volatility.

Since the proportion of stocks in Chinese citizens’ assets is significantly lower compared to developed countries, the Chinese stock market is expected to continue an upward trend in the mid to long term. Junghoon Shim, a researcher at KTB Investment & Securities, predicted, "In a low-interest-rate era with abundant market liquidity and continuously declining yields on bonds and real estate, funds will continuously flow into stocks with higher expected returns." The net inflow into the Chinese stock market in the first half of this year was 750 billion yuan, already surpassing last year’s net inflow of 670 billion yuan.

This content was produced with the assistance of AI translation services.