China exchange-traded funds investing in "H" shares such as the iShares FTSE/Xinhau China 25 ETF (NYSEARCA:FXI) and the iShares MSCI Hong Kong ETF (NYSEARCA:EWH) have set a torrid pace during the last month, fueled by two powerful engines. One has been the valuation gap between the "H" shares and the "A" shares which can be purchased only by Chinese and certain qualified foreign institutional investors.
The other was the announcement by the State Administration of Foreign Exchange [SAFE] that it would allow Chinese investors to invest directly into "H" shares.
Since that announcement on August 20th which was anticipated by a few months by the Chartwell ETF Advisor, the benchmark Hang Seng Index has risen 26%.
But now turf battles between SAFE and the China Banking Regulatory Commission [CBRC] may result in significant backsliding on this crucial issue.