China ETFs Draw Billions as Investors Look to Fiscal Stimulus

Investors drove massive inflows into exchange-traded funds that buy Chinese stocks last week on optimism over additional fiscal stimulus, even as local shares came off the highs reached the week before.

Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $5.44 billion in the week ended Oct. 11, despite a small outflow from bond funds, according to data compiled by Bloomberg. Chinese stocks attracted $5.15 billion.

The iShares China Large-Cap ETF saw the biggest inflow, totaling $2.5 billion, while the Xtrackers Harvest CSI 300 China A-Shares ETF recorded its largest weekly inflow on record, of $1.5 billion, according to the data. The iShares MSCI China ETF and the Direxion Daily FTSE China Bull 3X Shares also saw inflows, of $762 million and $735 million, respectively.

“China had been abandoned by many ETF investors,” said Hasnain Malik, a strategist at Tellimer in Dubai. “Now many are again involved in the debate as to whether we will see a meaningful enough stimulus on the fiscal side. They are no longer so convinced we won’t and therefore do not want zero exposure.”

Last week’s inflow came even as Chinese stocks listed onshore whipsawed, soaring on Tuesday and then tumbling by the most since 2020 on Wednesday as traders grew impatient over the pace of Beijing’s stimulus measures, while weak holiday-spending data hurt sentiment. Investors are demanding more from Beijing to back up its spending pledges.

In a closely monitored press conference over the weekend, Finance Minister Lan Fo’an vowed new steps to support the property sector and hinted at greater government borrowing. While authorities refrained from giving a headline dollar figure that investors had sought, Goldman Sachs Group Inc. saw the latest measures as a sign of increased policy focus on growth.

“ETF flows often lag market performance in the short-term, expanding after a market has rallied, and contracting after it has declined,” Malik said.

Markets saw some a recovery on Monday after last week’s selloff. The CSI 300 Index closed 1.9% higher, taking its advance from a September low to 25%. 

The Vanguard FTSE Emerging Markets ETF, which has about 23% of exposure to China, saw inflows totaling $727 milion. So far this year, flows into ETFs that buy emerging market stocks and bonds have totalled $19.6 billion.

The inflows could be attributed to investors short-covering and chasing momentum, said Todd Sohn, an ETF strategist at Strategas.

“Historically, China is one of the most volatile equity markets out there — rallies can sustain for roughly 75% on average over some 175 trading days, so I think the flows are reflecting a chase towards a very beaten down corner, along with the stimulus backdrop,” he said. “But, you have to be able to stomach the volatility and possibility of a larger disappointment.”

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Following are tables detailing net flows for emerging-market ETFs in US dollars. The data include the holdings-weighted allocations from multi-country funds, as well as country-specific funds. Latest and historic flows are allocated using latest fund weightings :

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Europe, Middle East & Africa

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