What the ETF? China-focused ETFs are among the best performers on the ASX
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Look at the list of best performing ASX Exchange Traded Funds (ETFs) and most have one thing in common – exposure to China.
The average ETF is only up 1 per cent in the last month and 12 per cent in 6 months but the top winners are almost exclusively occupied with Asia-focused ETFs.
Some ASX ETFs are exclusively focused on China, others have broader regional themes that inevitably include Chinese companies.
Sitting on top is Betashares’ AsiaTech Tigers ETF (ASX:ASIA), up 80 per cent in the last year and 16 per cent in January.
BetaShares boasts that includes technology giants hailing from China including Alibaba, Tencent, Baidu and JD.
Next is Ishares’ Asia 50 ETF (ASX:IAA) which tracks the S&P Asia 50 Index – an indice of the 50 Asian stocks part of the S&P Global 1200. Again, this includes Chinese tech giants such as Tencent and Xiaomi.
Here’s a list of the top performing ASX ETFs:
Click headings to sort. Scroll or swipe to reveal table.
Jamie Hannah, Van Eck’s Deputy Head of Investments & Capital Markets, thinks the growth seen in China focused ASX ETFs is probably a story of China’s strength.
“I think that China had COVID at the start and recovered a lot quicker than the rest of the world,” he told Stockhead.
“So they were they were able to capitalise on it and really drive their economies harder than the rest of the world.
“And it’s flowed into the performance underlying shares and hence the strong performance. Particularly new technology, healthcare and discretionary consumer areas have been driven hard,” he said.
“And I think that’s continued into the new year. I know they’ve got some new cases but all the macro data is good compared to the rest of the world.”
Hannah thinks strength will continue to be found in China. Even if diplomatic tensions mean businesses struggle to expand beyond the local market.
“Obviously they [China] have their mega tech companies, Alibaba and Tencent,” he said.
“But China’s over a billion people and their market is heavily driven by local investors.
“The Chinese are big investors into their local stock market and they’ve been confident to continue to invest in the last year and a lot of that has been reflected in rising asset prices.”
“You need to put it into perspective that as China, being the second biggest economy in the world and it could be the largest – their population and local companies are behemoths in comparison to Australian companies.”
“As these companies do well it flows into the market, the global economy and we’re seeing these returns continue.”
Another thematic appealing to investors in China-focused ASX ETFs were the performances of some individual Chinese companies.
“You’ve got these big companies that have some company-specific tailwinds behind them,” explained Morningstar’s Matt Wilkinson.
“Tencent has been going well and Alibaba has started to rebound after falling significantly for 4-5 months. Initially it fell because the Ant Financial IPO was pulled and Jack Ma went missing.”
However, recent news reports indicate Jack Ma has turned up.
“I don’t think Ant is back on the market but at least there’s some uncertainty removed now that he’s reappeared,” Wilkinson said.
He added that the individual company thematic was true among broader Asia themed ASX ETFs. He named the electronics industry as an example, with two such companies being Taiwan Semiconductor (TPE:2330) as well as Korean electronics giant Samsung (KRX:005930).
Of course, Asia is not the only region with growing companies but the countries more heavily hit by COVID-19 were being propped up by stimulus.
“The Asian markets have dealt better in terms of economic recovery – the economic numbers out of Asia have been strong, particularly China, overall,” Wilkinson said.
“And the Western economies – Europe, UK and the US – are largely relying on stimulus to propel investor sentiment.”
Stockhead also spoke with Kanish Chugh, head of distribution at ETF Securities.
While his company was not a manager of those ASX ETFs focused on China, he noted there was increased interest in emerging markets generally including China.
“What we have seen since the [US] election, the Biden inauguration and shift from a Trump presidency to a Biden presidency, there has been a greater focus on emerging markets,” Chugh said.
“There’s belief that we could see a new investment and market rally and some of the Asian markets did drag a bit with the COVID impact.”
“China was probably an outlier in that space. Last year, the perception is they had a handle on COVID and we saw quite a lot of interest in China and their recovery trade.”
One emerging market that Chugh’s firm does have ETFs focused on is India – with the ETFS Reliance India Nifty 50 ETF (ASX:NDIA).
The ETF tracks India’s Nifty 50 Index and is up 20 per cent in the last six months.
Chugh noted that India is often branded as the ‘Next China’ and investors are interested. He revealed he visited the country for himself on a trip with institutional clients early last year before COVID-19 hit.
“It was positive to see some of the developments occurring,” he said.
“One thing I took away from it and the clients I took along with me, they all took this away: India will be somewhere you need to invest but not for a short term gain.”
As a general rule, ASX ETFs with a broader Asia focus tend to have less focus on India, with a higher weighting allocated to China.
“If you look at a broad Asian equities ETF, the India exposure is anywhere from 8 to 10 per cent and you’ve got about 40 per cent into China,” Chugh said.
“There’s a lot of potential, so if you want to have exposure to have that equal footing you need to overweight it (India) with a single country ETF because you won’t get that exposure via a broad product.”
The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.