[Practical Investment] Chinese ETFs Sweep 9 of Top 10 ETF Returns Amid Economic Recovery Optimism

KINDEX China Mainland CSI300 Leverage 43.58%↑ Highest in July
Annual Return Also ARIRANG Shenzhen ChiNext 68.65% 1st Place
Shanghai Index Recovers to 3400 Level... Up 30% from March 19 Low
Liquidity Effect, V-Shaped Economic Rebound, Leading and Coincident Indicators Also Rise

[Asia Economy Reporter Song Hwajeong] Recently, as the Chinese stock market has shown strength, China-listed exchange-traded funds (ETFs) have also recorded high returns, outperforming other overseas ETFs. With the Chinese stock market rebounding to some extent, there is growing interest in whether it is a good time to invest now.

According to the Korea Exchange on the 15th, as of the 13th, nine out of the top 10 ETFs by return this month were China ETFs. The KINDEX China Mainland CSI300 Leverage (Synthetic) rose 43.58% this month, recording the highest return, followed by TIGER China CSI300 Leverage (Synthetic) at 40.58%. Other ETFs in the top 10 included KODEX Shenzhen ChiNext (Synthetic) (22.63%), ARIRANG Shenzhen ChiNext (Synthetic) (22.54%), TIGER China CSI300 (21.64%), KODEX China H Leverage (H) (20.68%), SMART China Mainland Small & Mid Cap CSI500 (Synthetic H) (19.14%), KODEX China Mainland CSI300 (19.13%), and KINDEX China Mainland CSI300 (18.58%).

Among ETFs not related to China, the only one in the top 10 was KODEX US FANG Plus (H) (19.21%).

Notably, among China-related ETFs, inverse ETFs showed the lowest returns, reinforcing expectations that the Chinese stock market’s strength will continue. TIGER China CSI300 Inverse (Synthetic) fell 17.21% this month, recording the lowest return, followed by KODEX China H Futures Inverse (H) (-10.1%) and KBSTAR China H Futures Inverse (H) (-10.0%).

For the year-to-date as well, the top-performing ETF was China-related. As of the 13th, the highest return ETF this year was ARIRANG Shenzhen ChiNext (Synthetic), which surged 68.65%. KODEX Shenzhen ChiNext (Synthetic) followed at 67.79%, KINDEX China Mainland CSI300 Leverage (Synthetic) rose 45.20%, and TIGER China CSI300 Leverage (Synthetic) increased 44.97%, with China-related ETFs sweeping the top five returns this year.

Especially, products with high volatility showed high profitability. KINDEX China Mainland CSI300 Leverage (Synthetic) tracks the CSI 300 index and has a net asset value of 29.6 billion KRW. Being a leveraged product, its volatility is classified as 'very high.' TIGER China CSI300 Leverage (Synthetic) also uses the CSI 300 index as its underlying asset and has a net asset value of 291.3 billion KRW, with volatility also at the 'very high' level. KODEX Shenzhen ChiNext (Synthetic) and ARIRANG Shenzhen ChiNext (Synthetic) both use the Shenzhen ChiNext index as their underlying asset, with net asset values of 33.7 billion KRW and 6.2 billion KRW respectively. These products also have 'very high' volatility. Volatility is annualized based on the standard deviation of daily returns over the past year from the inquiry date, classified as 'very low' if below 10%, 'low' if below 15%, 'normal' if below 20%, 'high' if below 25%, and 'very high' if 25% or above.

Other overseas ETFs with high returns this year include KODEX US FANG Plus (H) (49.52%), KODEX US FANG Plus (H) (38.92%), KODEX WTI Crude Oil Futures Inverse (H) (36.5%), KBSTAR US Long-Term Treasury Futures Leverage (Synthetic H) (34.98%), KINDEX Gold Futures Leverage (Synthetic H) (33.91%), KINDEX US 4th Industrial Internet (Synthetic H) (29.12%), and TIGER US Nasdaq 100 (28.65%). After the COVID-19 pandemic, crude oil prices plummeted, leading to a surge in crude oil futures inverse ETFs, which recorded high returns. Nasdaq-related ETFs and US tech stock ETFs, which had been on a record high streak, also showed strength but did not surpass China ETFs. Gold-related ETFs also showed high returns due to safe-haven demand as gold prices hit record highs amid COVID-19.

The strong performance of China ETFs is due to the favorable Chinese stock market. The Shanghai Composite Index recovered the 3,000 level this month and rose to 3,400. Except for one day on the 10th, it has risen every day this month. Compared to the low point recorded on March 19 (2,646.81), it has risen 30.09%. The strength of the Chinese stock market reflects expectations for economic recovery in China. Kim Kyunghwan, a researcher at Hana Financial Investment, said, "As of July, the Chinese A-share market prices have primarily reflected the recovery of leading and coincident indicators in the second quarter," adding, "The valuations of the Shanghai Composite Index and Shenzhen ChiNext (China's Nasdaq) have risen 34% and 62% respectively from the March lows, reflecting liquidity effects and a V-shaped economic rebound in the second quarter."

In the first half of the year, all major leading and coincident economic indicators in China rebounded sequentially. According to Hana Financial Investment, leading indicators (total social financing, bank loans, PMI new orders, infrastructure investment) rose for 3-4 consecutive months as of June, and coincident indicators (car sales, housing transaction area, bond yields, producer prices) rose for an average of 2-3 consecutive months, with producer prices last rising in June. Researcher Kim explained, "From the A-share perspective, leading indicators drove the valuation increase in the second quarter, and coincident indicators will underpin the recent one-month rise in major indices and future upward revisions of earnings per share (EPS)."