China ETF Overtakes BlackRock Fund as Investors Avert Sanctions

(Bloomberg) -- A Chinese exchange-traded fund has surpassed BlackRock’s Inc.’s ETF to become the largest tracking onshore stocks as investors look to ride a surge in equities while skirting a U.S. clampdown.

China Asset Management (Hong Kong) Ltd.’s CSI 300 Index ETF grew to $2.7 billion in assets as of Tuesday, surpassing BlackRock’s iShares fund tracking the FTSE A50 China Index.

Investors are shifting to the Chinese-owned CSI 300 index fund partly to avoid U.S. sanctions, which forced New York-based BlackRock to unload shares in popular telecom stocks such as China Mobile Ltd. Buyers have also been attracted to the index’s broader holdings, compared with the finance-heavy FTSE A50, said Max Lan, Hong Kong-based portfolio manager at China Asset Management.

“While our ETF products with Chinese firms in the investment ban are not suitable for U.S. investors at the moment either, we have seen strong demand from non-U.S. investors, from countries in Asia and Europe,” Lan said.

BlackRock, the world’s largest fund manager, has been selling stakes in three Chinese telecommunication providers including China Telecom Corp., after the U.S. put them on its sanctions list over alleged national security concerns.

Representatives for BlackRock didn’t respond to a request seeking comment.

The sanctions have had little impact on the shares, with China Mobile and China Telecom both jumping more than 7% already this year. The gains have added to a surge in the Hong Kong index, with the Hang Seng jumping 10% in 2021, the most of any developed market this year. The inflows from mainland China have pushed the index to it highest since May 2019.

ETF investors are also trying to avoid the confusion following the U-turns of fund managers in response to the U.S. measures. Hong Kong’s biggest ETF tracking the Hang Seng Index last week began resuming buying impacted Chinese stocks after its managers at State Street Corp. reversed their decision of two days earlier.

Xiaomi Corp. was one stock caught up in the policy reversals. The stock plunged a record 10% in Hong Kong on Jan. 15 after the U.S. administration added it to the blacklist. The country’s No. 2 phone maker has since retraced those losses in the last three sessions.