With China’s equity markets getting hairier by the day, investors have apparently set their sights on Hong Kong in search for value.
According to Bloomberg, Blackrock’s U.S.-traded China Large-Cap ETF – a fund that solely invests in Hong Kong-listed firms – saw nearly $600 million added to it in the past month, helping the fund post its second largest inflow in nearly three years.
This is in stark contrast to the mainland-tracking Deutsche X-trackers Harvest CSI 300 China A-Shares ETF, which saw nearly $180 million yanked out of it in just two weeks while short interest – last seen at 19% – soared to 22%, its highest percentage since the fund’s inception.
While its easy to point the finger at the SHCOMP’s dramatic plunges as the main reason for the shift – at the time of writing, it just dropped 5% in 30 minutes – two main drivers are also apparent, namely, the H-shares’ discount to their A-share counterparts, and the institutional nature of Hong Kong’s equity market.
Causeway Capital Management’s Arjun Jayaraman is one of those piling into Hong Kong, and here’s what he had to say to Bloomberg:
“The valuation on the H-share market is just much more compelling than the A-share market… (t)he H-share market is a more institutional market; this is what global managers invest in. We are not as momentum-driven.”
Photo credit: slack12 via Flickr