The Chinese stock market has experienced a major rebound to the relief of some exchange-traded product (ETP) investors, who have seen their investments struggle to outperform for well over a year.
According to Morningstar data, there are about 74 percentage points between the best and worst performing ETPs in November, ranging from 40.7% to -33.8%.
In the second half of the month Chinese stocks rallied on the back of renewed investor optimism that China may be moving towards easing the restrictions imposed by the “zero-Covid” policy – and this was reflected in the top 15 performing ETP table.
Indeed, the National Health Commission said it would step up efforts to vaccinate the elderly, with a goal to ease restrictions on even the most basic activities. The decision came after unprecedented anti-lockdown protests swept several cities in China, images and videos of which have gone viral, as protests of this scale have not been seen for many years.
The Leaders
Dragging up the entire market was the technology sector in particular, relieved by the recent detente in relations between Beijing and Washington, as shown for instance by the returns of the KraneShares CSI China Internet ETF (KWEB) and the HSBC Hang Seng Tech UCITS ETF (HSTC). These ETFs rose by 40.7% and 29.5%, respectively.
After the G20 summit, investors could also see the close ties between the world’s two largest economies, reducing the risk of delisting for hundreds of Chinese companies listed on the New York Stock Exchange and increasing the prospects for business between the two nations.
China is also behind the excellent performance of tin, as evidenced by the 26.5% gained by the WisdomTree Tin ETC (TINM). And, Chinese authorities announced further support for the country’s (highly indebted) real estate sector, which has raised expectations of increased demand for construction inputs, including tin, of which China is also the world’s largest producer.
The Laggards
On the other hand, the ranking of the worst performing ETFs in November see as many as eight ETFs exposed in various ways to digital assets and cryptocurrencies.
The collapse of FTX, Sam Bankman-Fried’s notorious Bahamas-based cryptocurrency trading platform, undermined the credibility of the entire industry. During bankruptcy proceedings in the United States, it was shown that the company lacked corporate control and was indebted to the extent of $3.1 billion to its 50 largest creditors.
As a result, ETPs tracking the related token (FTT) lost almost their entire value and – as reported by ETF Stream – CoinShares, 21Shares and VanEck have suspended the exchange-traded products (ETPs) that specialised in FTX because market makers can no longer put a price on FTT tokens.
Chicago wheat futures fell further to below $7.7 in late November, the lowest in over three months, pressured by continued shipments out of Ukrainian Black Sea ports. Following a period of supply uncertainty, Russia agreed to participate in a UN-brokered deal allowing ships carrying Ukrainian grain safe passage through the Black Sea, a move that significantly eased shortage concerns.
“Agricultural commodities have seen significant strength this year, particularly grains, due to the disruption in Ukrainian exports along with poorer weather in a number of key growing regions,” Warren Patterson, Head of Commodities Strategy at ING, says in a commodities outlook for 2023.
“These markets are going to remain sensitive to developments in the Russia/Ukraine war.”
However, he believes risks are skewed to the upside for now: “There are some early signs that the winter wheat crop in some key growing regions will be smaller next season, whilst clearly for agri crops in general, yields could suffer due to less application of fertilisers, given the strength in the market this year.”
The Biggest
Monthly top and flop performers often coincide with very volatile and therefore risky products, which should play a satellite role in your portfolio. As such, we also include an overview of the biggest European-domiciled ETPs in terms of assets, which could be more appropriate to consider among core holdings. Performance in November 2022 range from -2.7% for the iShares $ Treasury Bond 1-3yr UCITS ETF USD (IBTS), up to iShares Core MSCI EM IMI UCITS ETF USD (EIMI), which gained 10.3%.
We have looked at the key trends in the eleventh month of the year, excluding inverse and leveraged funds. These instruments, being purely passive products, reflect the evolution of the markets without the bias (good or bad) of an active manager.
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