Latest China Stock Craze Sees ETF Draw $2 Billion in Eight Days

(Bloomberg) -- A Chinese exchange-traded fund investing in 5G has drawn $2 billion in cash in less than two weeks, the latest sign of speculative activity buoying the nation's shares.

The amount accounts for 80% of the funds the China AMC CSI 5G Communications Theme ETF has attracted since October's launch, and makes the offering the most popular ETF in China in the past year, according to data compiled by Bloomberg. The fund tracks the CSI 5G Communication Index, which has jumped 25% this year.

The inflows are drawing comparison to 2015, when speculators flocked to equities, inflating a bubble. Tech shares are once again favored targets of investors, despite the negative effects on the economy caused by coronavirus outbreak.

“ETFs and tech funds have gained an absurd amount of traction, and these flows fuel a self-fulfilling prophecy,” said Dong Baozhen, fund manager at Lingtongshengtai Asset Management in Beijing. “If funds keep pouring in at this pace, we will be left with mythological valuations and a bubble burst, just like 2015.”

China's stock market has erased losses spurred by the mass shutdown of the economy, with the broader CSI 300 Index surging 13% since its Feb. 3 low to approach a two-year high. Bets on fiscal stimulus and liquidity easing have powered the rally. The yuan too has shown ebullience, rising this week to its highest level since Jan. 22.

There are signs authorities are trying to keep the fund sector from overheating. E-Fund Management Co. stated Wednesday it will set a cap of 1.5 billion yuan for a tech-focused fund set to launch next week to protect the interests of investors.

“Regulators don't want to see a rapid increase in the size of these funds,” said Liu Shichen, lead analyst at Z-Ben Advisors Ltd. “With such an influx of money all flowing into small caps, that fuels speculative and arbitrage trades which are something that authorities want to avoid. It's likely that tech-themed funds will see a limit on size going forward.”

To contact Bloomberg News staff for this story: April Ma in Beijing at ama112@bloomberg.net;Amanda Wang in Shanghai at twang234@bloomberg.net

To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, Kevin Kingsbury, Richard Frost

©2020 Bloomberg L.P.

With assistance from Bloomberg