China A-Shares ETFs Could Capture Investors’ Attention

November 7th at 1:34pm by Todd Shriber

The db X-trackers Harvest CSI 300 China A-Shares Fund (NYSEArca: ASHR) debuted Wednesday, becoming the first U.S.-listed exchange traded fund to offer investors direct access to China’s previously hard-to-access A-shares market and some market observers already see the potential in A-shares ETF offerings.

There are a lot more domestic companies that are listed in the A-shares market that we as foreign investors cannot touch,” David Poh, the regional head of portfolio-management solutions at Societe Generale’s private bank, said in an interview with Bloomberg’s Weiyi Lim.

Currently, China limits foreign investors’ access to A-shares, which trade in Shanghai and Shenzhen, to Qualified Foreign Institutional Investors and Renminbi Qualified Foreign Institutional Investors. However,  the world’s second-largest economy is looking to increase foreign investment after seeing its mainland equity markets stumble over the past several years despite compelling valuations.  [China Paves Way for More A-Shares ETFs]

On a percentage basis, foreign ownership of China’s domestic market is scant. Even when including stocks listed in foreign markets, the level is just 11.4%, according to Deutsche Bank data. That is less than half the levels seen in Japan, Taiwan and Mexico and barely more than a quarter of the foreign ownership of U.K. equities. [DB's A-Shares ETF Officially Debuts]

In reference to companies listed in Shanghai and Shenzhen, China’s A-shares markets, Poh told Bloomberg, “Some of them are really good companies listed in Shanghai and Shenzhen that are not listed in Hong Kong.”

Like many of the China ETFs U.S. investors are already familiar with, ASHR features a large weight to the financial services sector (38.6%).

However, the new ETF is a valid play on the Chinese consumer, one of the country’s more alluring investment themes. Consumer discretionary and staples names combine for over 18% of the new ETF’s weight. Green Electric Appliances is the lone non-financial services company found among ASHR’s top-10 holdings.

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