- While SGX-listed ETFs saw S$1.7 billion of trading turnover in 1H23, down 15% from 2H22, ETFs with exposure to Gold, China equities and Asian REITs saw turnover increases of 17%, 8%, and 5% respectively. The Lion-OCBC Securities Hang Seng TECH ETF, which tracks the Hang Seng TECH Index, saw the highest 1H23 turnover of S$558 million among all SGX-listed ETFs.
- Optimism in Chinese Tech Firms returned in June with higher-than-expected sales during June’s key shopping festival in China. The Hang Seng TECH Index gained 7.5% in June, beating both the Hang Seng Index and Nasdaq 100 Index. Similarly, the MSCI China All Shares IMI Future Mobility Top 50 Index, which provides investors’ access to Chinese EVs also gained 6% in June.
- The ICBC CSOP FTSE Chinese Government Bond ETF recorded a 2-year high in monthly net inflows with S$67 million of net units created in June as investors expect China’s bond yield to drop further and the RMB to stabilise. The iShares USD Asia High Yield bond ETF also saw net inflows of S$223 million in June – the second consecutive month with net creation exceeding S$100 million.
- Analytical focus on China continues to be on the effects of decelerating global demand for exports, the housing market in addition to the risk of escalating geopolitical tensions with the IMF recently maintaining that the number of global trade and Foreign Direct Investments (FDI) restrictions has increased three-fold since 2018.
Most Traded ETFs in 1H23
1H23 total turnover for SGX-listed ETFs reached S$1.7 billion. Though total turnover of the product suite decreased 15% from 2H22, several asset classes saw resilience in terms of turnover. ETFs with exposure to gold, Chinese equities and Asian REITs saw turnover increase 17%, 8%, and 5% respectively compared to the previous half. On the other hand, Fixed Income ETFs saw the greatest decline in turnover in 1H23.
The Lion-OCBC Securities Hang Seng TECH ETF, which tracks the Hang Seng TECH Index, generated the highest 1H23 turnover, among all SGX-listed ETFs at S$558 million, bringing its 12-month turnover to over S$1 billion. This follows as optimism in Chinese technology firms returned with higher-than-expected sales during key June shopping festival. The Hang Seng TECH Index gained 7.5% in June, almost doubling the 3.4% gains made by the main Hang Seng Index (all in S$-terms).
Similarly the Nasdaq Golden Dragon China Index gained 9% over the month, beating the Nasdaq 100 Index which gained 6%. The MSCI China All Shares IMI Future Mobility Top 50 Index, which tracks Chinese companies that are expected to derive significant revenues from energy storage technologies (including electric vehicles), autonomous vehicles, shared mobility, and new transportation methods, also gained 6% in June.
On the other hand, the CSI 300 Index dipped 1.1% in June, extending declines to close to 10% since hitting its 2023 high at the end of January after China shifted away from its Covid containment policies. In contrast, the S&P 500 Index gained 6% in June, adding to its 1H23 gains of 17%. This saw the price ratio spread (in US$-terms) of the CSI 300 Index to the S&P 500 Index end June at more than two standard deviations below the five-year mean. This price ratio spread of the two benchmarks moved above the two standard deviation threshold in December 2022, before returning below the threshold in May 2023.
Investors’ interest return in China and Asian bond markets
The ICBC CSOP FTSE Chinese Government Bond ETF (world’s largest Chinese pure government bond ETF) recorded a 2-year high in monthly net inflows with S$67 million of net unit creations in June, on the back of renewed optimism as investors expect China’s bond yield to drop further and the USDCNY currency to stabilise from the current level of 7.23 (a 8-month high since November 2022).
Improved investor sentiment was also observed in the broader Asian bond market. The iShares USD Asia High Yield bond ETF, which tracks the Bloomberg Asia USD High Yield Diversified Credit Index, saw net inflows of S$223 million in June as investors increased exposure towards higher yielding bonds in the region. The top five markets, which the ETF has exposure to, include China, India, Macau, Hong Kong and Philippines. Together, China, Macau and Hong Kong make up more than 50% of the total index weight. This is also the second consecutive month that the iShares USD Asia High Yield bond ETF recorded more than S$100 million in net creations, following a net creations of S$117 million in May.
SGX lists seven ETFs that provide investors access to the Chinese equity market and two ETFs that provide investors access to the Chinese bond market. More details of the nine ETFs can be found below and in the July 2023 Monthly Highlights of China-focused ETFs.
SGX-listed ETFs with exposure to Chinese Equity & Bond markets
Source: Bloomberg, SGX (30 June 2023)
China’s Services-Led Recovery
Recent June economic data indicates that China may be losing momentum in the second quarter. The country’s official manufacturing purchasing managers’ index (PMI) rose to 49 in June, up from 48.8 in May, though still in contractionary territory. Its services activity expanded at the slowest pace in 5 months in Jun, as post-pandemic recovery momentum loses steam.
China had previously announced its 2023 GDP growth target of 5% in March. At the World Economic Forum’s annual China conference on 26 June, Chinese Premier Li Qiang said that the target is still on track, with the growth in 2Q23 to be faster than it was in 1Q23. Several international organisations also raised their forecast recently. The World Bank upgraded its forecast to 5.6% in June, up from 4.3% previously while the International Monetary Fund raised its forecast to 5.2% in April, up from 4.4% previously.
However, ahead of the release of GDP data in mid-July, several Wall Street banks had downgraded their full-year China GDP forecasts, with Goldman Sachs and Bank of America trimming its forecasts by 0.6% each to 5.4% and 5.7% respectively.
While US Treasury Secretary Janet Yellen’s recent visit to Beijing lifted hopes for easing geopolitical tension, focus on China continues to be on the effects of decelerating global demand for exports, the housing market in addition to the risk of escalating geopolitical tensions with the IMF recently maintaining that the number of global trade and Foreign Direct Investments (FDI) restrictions has increased three-fold since 2018.
Diversification with Chinese Equities and Bonds
A significant feature of China’s equity and fixed income market is the low correlation it has to global markets, offering diversification opportunities for global investors.
According to data from Bloomberg, the correlation of China Treasury & Policy Bank bonds and Global aggregate remain low at around 0.06, partially due to low foreign participation in the Chinese bond market and an independent monetary policy. Similarly, China equities has a 10-year monthly correlation of 0.33 with US equities and 0.37 with Global Equities.
Source: Bloomberg, monthly correlation from 30 Jun 2013 to 30 Jun 2023; China equities = CSI300 Index, US equities = S&P500 Index; Global Equities = FTSE World Index; China Treasury and Policy Bank = Bloomberg China Treasury and Policy Bank USD unhedged index; Global Aggregate = Bloomberg Global Aggregate USD unhedged index; US Aggregate = Bloomberg US Aggregate index in USD
