BlackRock's China ETF lures record cash amid world-beating rally

INVESTORS are piling into the largest US listed exchange-traded fund tracking Chinese stocks, as loosening virus restrictions and an easing regulatory crackdown attract buyers to a market deemed "uninvestable" by some just months ago.

The iShares MSCI China ETF (ticker MCHI) lured US$333 million on Wednesday (Jun 29), its largest single-day inflow since the fund's inception in 2011. The US$8.5 billion ETF, which mostly invests in shares of Chinese companies listed in Hong Kong, has rallied almost 8 per cent this month, Bloomberg data show.

As central bankers around the world raise interest rates to tamp down rising inflation, stocks have paid the price. Fears of a looming recession have sent US shares to their worst first half since 1962, while European stocks had their worst start to the year since the global financial crisis. Chinese stocks, in contrast, have surged in recent weeks, as policymakers dial back months of stringent virus curbs, deleveraging efforts and punishing regulatory and antitrust campaigns against the private sector.

"It speaks to the bottom fishing going on, and the desire to allocate to any asset that is actually going up in this environment," said Todd Sohn, an ETF strategist at Strategas Securities. "China is basically zigging, while global equities zag."

Whether the recent rally can continue remains uncertain, Sohn said, particularly if the country dials back its moves to ease Covid-19 restrictions.

Still, most investors remain upbeat. A recent Bloomberg survey of 19 fund managers and analysts shows that they expect benchmark stock gauges in China and Hong Kong to post gains of at least 4 per cent by year-end, outperforming their global peers.

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As for MCHI, it hasn't seen a single day of redemptions this year. In fact, 4 out of the 5 largest 1-day flows into the fund have occurred in 2022, according to Bloomberg Intelligence's Anthony Rayar. BLOOMBERG