The resurgence in emerging market stocks this year has been led by Chinese shares. But China can be a confusing place to invest and the regulatory climate has created a maze of choices and opportunities.
Currently, the Chinese government restricts investments in A-shares, which trade in Shanghai and Shenzhen, to domestic Chinese investors and Renminbi Qualified Foreign Institutional Investors (RQFII). As a result, most Chinese mutual funds and ETFs do not currently have A-Shares exposure.
For example, the iShares China Large-Cap ETF (FXI), with almost $8 billion in assets, is one of the most popular U.S. listed Chinese equity ETFs. But the fund owns Chinese companies that trade on the Hong Kong Stock Exchange. And while Hong Kong is part of China today, it maintains a separate currency, regulatory governance and provides no restrictions for foreign investors. For these reasons, Hong Kong stocks are usually classified as a developed market by index providers.
However, a new generation of Chinese ETFs with exposure to A-shares have invaded the U.S. marketplace. These types of funds own Chinese companies that are incorporated in the mainland and traded in Shanghai or Shenzhen in China’s official currency, the renminbi (RMB).
The opportunity set is very different from investing in Chinese ETFs that use ADRs or Hong Kong listings for their market exposure.
Let’s analyze five Chinese ETFs that invest in mainland companies.
1. db X-trackers Harvest CSI 300 China A-Shares Fund (ASHR)
Launched in November 2013, ASHR was the very first U.S.-listed ETF to provide direct exposure stocks located on China’s mainland. The fund owns 300 of the largest and most liquid stocks in the China A-share market. Financial stocks (41%) represent the fund’s largest industry sector and the $1.2 billion fund charges annual expenses of 0.80%.
2. KraneShares Bosera MSCI China A Shares (KBA)