A 100% plus return in just 12-months is the type of head turning performance that can attract a crowd. And it has.
The Deutsche Harvest CSI 300 China A-Shares ETF (ASHR) has surged 125% over the past year while its small cap cousin the Deutsche Harvest CSI 500 China-A Shares Small Cap ETF (ASHS) has jumped 150%. Neither ASHR nor ASHS uses leverage to magnify performance.
When ASHR was first launched in November 2013, it was a fairly obscure fund with less than $200 million in assets. Since then, ASHR’s asset base has surged seven-fold to around $1.5 billion.
Both ASHR and ASHS own Chinese companies that are incorporated in the mainland and are traded in Shanghai or Shenzhen in China’s official currency, the renminbi (or RMB).
If China’s equity bull market is to continue, here are some of the catalysts that will drive it.
Accommodative Central Bank
Reams have been written about the influence of central bankers on asset prices. And like other global markets from Japan to the U.S, the Chinese stock market has been the beneficiary of its monetary policy makers. The People’s Bank of China (PBOC), for example, has cut benchmark interest rates three times in the past six months on top of reductions in banks’ reserve requirement ratio.
Loosening of Foreign Capital Restrictions
Another boom to Chinese equities is the ongoing relaxation of foreign capital investment by the government.
Although China still restricts investments made in A-shares, which trade in Shanghai and Shenzhen, to domestic Chinese investors and Renminbi Qualified Foreign Institutional Investors (RQFII), the recent introduction of U.S. listed ETFs that invest in Chinese A-shares is evidence the Chinese government seems poised to allow more foreign investment. If this liberalization continues, it could pave the way to higher equity prices.
Membership in Equity Indexes
China’s $6 trillion onshore A-shares market could be just a few years away from being included in important emerging market benchmarks. And it seems major index providers already understand this.