Hang Seng rallies 33% in 21 days as Nippon India ETF trades at 5% premium: Will China stimulus boost SIP returns?

Nippon India Hang Seng ETF in focus: China recently introduced a significant stimulus package to boost its economic growth, increasing liquidity in the Chinese stock market and the banking system. This has increased optimism in Asian markets, with investors flocking to funds and equities to lock in profits amid the rally. Notably, the Nippon India Hang Seng ETF, the only fund in India tracking the Hang Seng index, was locked in the upper circuit on October 4.

Nippon India Hang Seng ETF has hit its maximum allowable price increase for the day and has no buyers at that level. Triggered by the rally in Asian markets, the ETF has gained nearly 20.7 per cent over the last week. D-Street experts noted that the ETF currently trades at a premium of five per cent and is not accepting new investments.

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Hang Seng index, Nippon India ETF amid China market rally 

The Hang Seng index began an upward trend on September 11 2024, starting at 17,108.71 points and rising to 22,736.87 points by October 4, 2024, marking a 32.9 per cent gain in just three weeks or 21 days. 

D-Street experts said before the rally (as of August 31, 2024), the Hang Seng index delivered an annualized return of -11.4 per cent per annum and -6.9 per cent per annum over a three—and five-year period. Nippon India Hang Seng ETF, the only fund in India tracking the Chinese index, delivered a return of 37.9 per cent in the same time frame.

Also Read: China’s market rally driven by policy measures unlikely to impact India’s economy or flows

Feroze Azeez, Deputy CEO, Anand Rathi Wealth Limited said, “The recent rally in the Hang Seng index due to the China stimulus policy is likely to positively impact the returns of the Nippon India Hang Seng ETF, which has delivered 13.08 per cent returns over three years and 5.07 per cent over five years.”

The ETF has provided a 54 per cent return in the last year and around 22 per cent in the last two years. According to NSE data, the Nippon India Hang Seng ETF last hit its 52-week high of ₹390.75 on October 3.

Also Read: Morgan Stanley reverses stance on Chinese stocks, favours overseas listings

 “An investor who began a three-year monthly SIP of ₹20,000 in the Nippon India Hang Seng ETF would have gained ₹10,198 as of August 31, 2024, translating to an annualized return of 0.92 per cent,” said Karan Rijhsinghani, Director – Head of Products & Advisory, Atom Prive Wealth.

“However, after the recent rally, the same SIP investor would now see a gain of ₹3,36,987 and an annualized return of 26.45 per cent as of October 4, 2024,” he added. D-Street experts, however, seem divided over the outlook on the near-term SIP returns by the Nippon India ETF as a result of the Hang Seng rally.

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Nippon India ETF: Can the Hang Seng-led rally boost SIP returns?

Feroze Azeez of Anand Rathi Wealth explained that the surge in Hong Kong’s markets could provide a short-term boost to this ETF, potentially enhancing investor interest. However, external factors influence global funds, making them more volatile than domestic funds.

In contrast, D-Street experts noted that domestic funds like HDFC Flexi Cap Fund, which has posted 33.91 per cent returns over three years and 31.5 per cent over five years, or Kotak Emerging Equity Fund, with 35.62 per cent and 32.80 per cent over the same periods, are backed by a stable economy and strong earnings numbers.

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“With India’s GDP growth steady at six per cent and fiscal deficit under control, the long-term prospects of domestic funds remain more appealing. Investors should be cautious of the external risks affecting ETFs with exposure to China, despite the temporary boost from the Hang Seng rally,” said Azeez.

However, despite the recent rally, Chinese markets are still trading at a significant discount of approximately 45 per cent from their January 2018 all-time high, hence making the Hang Seng index an attractive opportunity for investors. 

Also Read: China’s economic boost: What experts say about its impact on Indian economy and stock market

“Since the Nippon India Hang Seng ETF, the only index fund in India tracking the Chinese market, is closed for new subscriptions, investors seeking exposure to Chinese equities can consider alternative options,” said Karan Rijhsinghani of Atom Prive Wealth.

According to the expert. actively managed funds like the Axis Greater China Equity Fund of Fund and Edelweiss Greater China Equity Offshore Fund offer access to Chinese markets, providing potential investment opportunities in this space.

Also Read: China’s real estate stimulus to aid Indian steelmakers but oversupply persists 

Chinese stock market rallies on economic stimulus buzz

The stimulus- mainly targeting the property sector- has seen stocks in the city and mainland China enjoy a blistering run of more than 20 per cent in hopes that Beijing can reignite growth. Beijing’s announcements of economic support have fueled China’s CSI 300 blue-chip index to rally over 25 per cent spread across a nine-day winning streak. 

On Monday, the Chinese benchmark index soared over eight per cent to its best day in 16 years, and the Shanghai Composite index surged 8.06 per cent before the markets closed for a week-long holiday. China’s weightage in the MSCI’s benchmark for emerging market equities soared to 27.8 per cent in September, its highest level in over 10 months or since November 2023.

Also Read: China’s Market Rally: Will India feel the ripple effect or remain unscathed?

Global hedge funds flocked to Chinese equities on the back of Beijing’s much bigger-than-expected stimulus, leading to the strongest weekly buying on record. On Friday, Hong Kong’s Hang Seng jumped 2.8 per cent in its latest sharp swerve, with tech firms leading the charge. 

The index soared nearly 10 per cent over the week, led by the flurry of announcements by Chinese authorities to prop up the world’s second-largest economy as it struggles to regain momentum after the COVID-19 pandemic. Mainland Chinese markets were closed for the Golden Week holiday.

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China economic stimulus: What has Beijing announced?

China’s central bank announced its largest stimulus since the pandemic on September 24, aiming to boost the economy and move it closer to the government’s growth target. China’s central bank will cut banks’ reserve requirement ratio (RRR) by 50 basis points, releasing about 1 trillion yuan ($142.21 billion) for new lending. 

If necessary, the RRR may be further lowered by 0.25-0.5 percentage points later this year. Moreover, China’s central bank will cut the seven-day reverse repo rate by 0.2 percentage points to 1.5 per cent. China plans to spend funds on recapitalizing six big state-owned banks as the world’s second-largest economy as it struggles to regain momentum after the COVID-19 pandemic.

While acknowledging economic problems, the country’s leaders pledged to deploy necessary fiscal spending to meet this year’s economic growth target of roughly five per cent. The rebound in the Chinese market has sparked a shift in foreign capital away from India and toward China, lured by its cheap and attractive valuations.

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.