China ETFs Get Most Funds Since 2009 as Interest ‘Soared’

China region exchange-traded funds took in $796 million this month, the most since 2009, as interest in Chinese equities has “soared,” according to TrimTabs Investment Research Inc.

Emerging-market ETFs received $1.5 billion in October, the most in six months, TrimTabs said in a report dated yesterday, citing their own data. Emerging-market ETFs took in an average $1.4 billion monthly in the “two strong bull years” after the March 2009 low, TrimTabs said.

“China stocks are relatively cheap,” Charles Biderman, Chief Executive Officer of New York-based TrimTabs, said in the report. “China equities listed in Hong Kong are even trading at a discount to world stocks.”

The Hang Seng China Enterprises Index of Chinese stocks listed in Hong Kong trades at 1.5 times book value, compared with the four-year average of 2.3, according to data compiled by Bloomberg. China’s benchmark Shanghai Composite Index is valued at 11.3 times estimated earnings, compared with a record low of 10.8 times on Oct. 21, according to Bloomberg data. The Shanghai measure gained 0.7 percent to 2,427.48 at the close today, while the Hang Seng China Enterprises Index advanced 1.5 percent. The H-shares index has slid 21 percent in 2011, while the Shanghai index dropped 14 percent. The iShares FTSE China 25 Index Fund traded in New York has lost 18 percent this year.

China Policy Adjustment

China’s stocks have gained this week as easing inflation and slowing economy growth boosted speculation the government will end its two-year policy tightening campaign. The government will fine-tune economic policy as needed, as the nation tries to fight inflation while protecting against global economic turmoil, Premier Wen Jiabao said yesterday.

Officials will make adjustments at a “suitable time and by an appropriate degree” and will maintain “reasonable” growth in money supply, Wen said during a visit to Tianjin, according to a statement published on the government’s website. The government will continue to make tackling inflation a top priority, Wen said.

China may lower the reserve-requirement ratio for small-and medium-size banks before the year-end and cut interest rates in the second quarter next year after Wen’s speech, according to Guotai Junan Securities Co.

Wen’s comment reflects the government’s concern about the slowdown in economic growth, Wang Jin, an analyst at the Shanghai-based brokerage, wrote in a report today. Inflation may ease “significantly” in the second quarter next year, according to the report. Guotai Junan is China’s top-ranked arranger of domestic corporate bond sales, according to Bloomberg data.

Emerging Markets

China’s economy grew 9.1 percent in the third quarter, the least in nine quarters. Consumer prices rose 6.1 percent in September, compared with 6.2 percent in August.

TrimTab said its inflow data signaled increasing appetite for risk in emerging markets. Rising fund flows into emerging markets ETFs “might bode well for stock prices,” Biderman said in the report.

The volume of initial public offerings has plunged 96 percent in Hong Kong and 90 percent in China in October, according to the report.

To contact the reporter on this story: Irene Shen in Shanghai at ishen4@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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