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China ETFs fall despite surging stocks in Hong Kong after reports Chinese COVID restrictions are easing

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Shares of exchange-traded funds that buy Chinese stocks slipped in late afternoon trading Monday, falling after the Hang Seng index in Hong Kong rallied 4.5% amid media reports that China was softening its COVID-19 restrictions in face of protests.

The KraneShares CSI China Internet ETF
KWEB,
-0.23%
was down 0.2%, while the iShares MSCI China ETF
MCHI,
-0.10%
declined 0.2% and the Invesco China Technology ETF
CQQQ,
-0.02%
and iShares China Large-Cap ETF
FXI,
-0.32%
each fell 0.4%, according to FactSet data, at last check.  

The Associated Press reported that on Monday commuters in Beijing and other cities were allowed to board buses and subways without a virus test in the previous 48 hours for the first time in months. Reuters reported Monday that China may announce 10 new COVID easing measures as early as Wednesday, citing sources with knowledge of the matter.

“While investors in Chinese equities have had some more reasons to cheer of late, we doubt that they will reverse much more than a small fraction of their earlier underperformance relative to US stocks, at least in the near term,” said Oliver Allen, senior markets economist, in a note Monday.

Allen cautioned that investors might be overly optimistic about how quickly China could see a big shift from its zero-COVID approach. “We see a risk that the policy changes fuelling the recent rally disappoint expectations,” he wrote.

Goldman Sachs Group economists told clients in a research note Sunday that “there are likely to be challenges along the way” as China prepares to exit its zero-COVID policy, with preparations potentially lasting a few months, according to a Wall Street Journal report

Read: Emerging-markets ETFs are ‘burning investor cash’ as China drags down performance

Meanwhile, the U.S. stock market was trading down sharply Monday, with the S&P 500
SPX,
-1.79%
down 1.9% in late afternoon trading, FactSet data show, at last check. 

Credit: marketwatch.com

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