Exchange traded funds offering exposure to China’s once hard to access A-shares equities, such as the db X-trackers Harvest CSI 300 China A-Shares Fund (NYSEArca: ASHR) and the KraneShares Bosera MSCI China A ETF (NYSEArca: KBA), could benefit from plans by Chinese regulators to permit cross-market investing between Shanghai and Hong Kong.
A-shares, which trade in Shanghai and Shenzhen, have historically traded at premiums to H-shares, stocks traded in Hong Kong. Some Chinese firms that are listed in Hong Kong are also listed in London and New York and populate some of the largest China ETFs, such as the iShares China Large-Cap ETF (NYSEArca: FXI) and the SPDR S&P China ETF (NYSEArca: GXC). [A China ETF for the Long-Term]
Currently, A-shares stocks trade at a discount to their H-shares counterparts. “The move by Chinese regulators to allow freer cross-border trading ‘could be the catalyst that brings the share classes back in line – as evidenced by the spread tightening by 1.7 percent after the announcement,’”Ashley Lau reports for Reuters, citing Credit Suisse.
As a result of that discount and spread tightening, investors could reap rewards from being ETFs such as ASHR, KBA or the Market Vectors ChinaAMC A-Share ETF (NYSEArca: PEK). Those are the U.S.-listed ETFs that offer direct exposure to China’s A-shares markets while the PowerShares China A-Share Portfolio (NYSEArca: CHNA) uses derivatives.
Through partnerships with local assets managers, the issuers of ASHR, KBA and PEK have obtained Renminbi Qualified Foreign Institutional Investor (RQFII), allowing the funds to directly own A-shares. ASHR was the first of these ETFs to offer direct access China’s A-shares while KBA is the newest fund in the group. [Hard to Ignore A-Shares ETFs]
Following the launch of ASHR last year, Deutsche Bank filed plans with the Securities and Exchange Commission to launch a suite of China A-shares sector and market cap exchange traded funds to provide investors with direct access to various Chinese equity plays. The bank has filed plans for small-cap and consumer staples, financial services and technology equivalents, among other sectors, of ASHR. [More A-Shares ETFs Could Launch]
There has been talk that index provided MSCI could allow China A-shares into the MSCI Emerging Markets Index next year. Though expected to be gradual if it happens at allow, MSCI’s potential inclusion of China A-shares in the emerging markets index could eventually have the world’s second-largest economy accounting for almost 28% of the index. [Move to EM Index Could Lift A-Shares, ETFs]
db X-trackers Harvest CSI 300 China A-Shares Fund
