A-Shares Hit 10-Y High But Not Peak: What ETFs to Bet on China?

Although the Shanghai Composite Index is at a 10-year high, CSI 300 still remains about 20% below their 2021 peaks.

The total trading volume of A-shares broke 3 trillion yuan. The last time total market turnover exceeded 3 trillion yuan was on October 8 last year, reaching 3.4 trillion yuan.

Institutions raise forecasts for the A-share market

• HSBC raised its China index targets: Shanghai Composite by the end of 2025 from 3,700 to 4,000 points, CSI 300 from 4,300 to 4,600 points.

• $Morgan Stanley(MS)$’s China Strategy Chief Laura she remains bullish, expecting the CSI 300 to reach 4,700 points.

• $JPMorgan Chase(JPM)$ predicts a 35% upside for the MSCI China Index and 24% for the CSI 300, with strong prospects for media & entertainment and biotech sectors.

Could households’ excess savings continue to drive the Chinese stock market higher?

Household financial assets are massive, nearing 300 trillion yuan in the first half of 2025, but the proportion allocated to stocks has steadily declined since 2021. It is estimated that if 1% of household financial assets were reallocated to equities, it would bring an incremental inflow of about 3 trillion yuan.

Historically, A-share bull markets have been driven by retail inflows. While the household savings ratio relative to total market value has recently decreased, it remains historically high. If market sentiment intensifies, retail exuberance could drive A-shares significantly higher.

Foreign capital inflows

Last week, foreign hot money flowed into China at the fastest pace since July, mainly through long positions. On Tuesday, signs of longer-term buying were also observed. Notably, this foreign capital mainly targeted the A-share market. Trading data show that China and India are among the few Asian markets attracting net inflows.

With liquidity recovering, trading volume for small-cap indices like CSI 2000 began to decline, while mid-cap indices like CSI 500 saw volumes rise.

Which ETFs to invest in?

A-share ETFs

• $Xtrackers Harvest CSI 300 China A-Shares ETF(ASHR)$ : Tracks the most representative large-cap A-share index, the CSI 300. YTD 19%. Closely follows the top 300 companies in China A-shares, with high liquidity.

• $iShares MSCI China A ETF(CNYA)$ : Invests mainly in A-shares listed on the Shanghai and Shenzhen exchanges. YTD 16.49%.

• $SIMPLIFY CHINA A SHARES PLUS INCOME ETF(CAS)$: Tracks A-shares and provides additional income via option strategies. YTD 36.85%.

China ADR ETFs

• $iShares MSCI China ETF(MCHI)$ : Tracks the MSCI China Index, reflecting overall Chinese ADR performance. Heavily weighted in $TENCENT(00700)$ and $Alibaba(BABA)$ .

• $KraneShares CSI China Internet ETF(KWEB)$ : Focused on Chinese internet companies, holding about 30 firms, leading to high concentration.

• $iShares China Large-Cap ETF(FXI)$ : Invests in large-cap China stocks listed in Hong Kong, with more exposure to traditional sectors like finance and energy.

• $Direxion Daily FTSE China Bull 3X Shares(YINN)$ : 3x leveraged, amplifying index movements. Used for higher beta trading but not suitable for long-term holding.

• $Direxion Daily FTSE China Bear 3X Shares(YANG)$ : 3x inverse ETF of FTSE China 50, with a 1.11% expense ratio, used for hedging or shorting. High risk, not for long-term holding.

• $Invesco China Technology ETF(CQQQ)$ : Focused on Chinese tech stocks, including internet, electronics, semiconductors, and AI companies.

• $iShares MSCI Hong Kong ETF(EWH)$ : Focused on Hong Kong-listed local Chinese stocks, mainly financial and real estate large-caps. High dividend yield of 4.83% as of September 2, 2024.

1. As major global stock markets reach all-time highs, can the Chinese stock market catch up and hit new highs as well?

2. Could Chinese ADRs repeat last September’s rally and surge ahead of the National Day holiday?

3. Focus on Chinese tech ADRs or large-cap index ETFs?

4. Will you choose Chinese ADRs or A-share ETFs?

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