There are currently just five dedicated, U.S.-listed exchange traded funds offering investors exposure to China’s previously hard-to-access mainland A-shares markets, but if ETF issuers have their way, that number is poised to swell.
Issuers including “BlackRock (NYSE: BLK) and CSOP Asset Management have now registered almost 40 ETFs tracking the country’s domestic shares and debt with U.S. regulators,” report Boris Korby and Jackie Klauberg for Bloomberg.
Filings to add more A-shares ETFs have been in the pipeline for months. For example, BlackRock, the world’s largest asset manager and parent company of iShares, the world’s largest ETF issuer, earned its first renminbi qualified foreign institutional investor (RQFII) licence by the China Securities Regulatory Commission (CSRC) in April. [BlackRock Lands RQFII License]
Last year, Deutsche Bank (NYSE: DB) 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 filed plans for consumer staples, financial services and technology equivalents, among other A-shares sector ETFs.
Deutsche Bank’s Deutsche Asset & Wealth Management unit is the dominant name in U.S.-listed A-shares ETFs with the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (NYSEArca: ASHR) and the Deutsche X-trackers Harvest CSI 500 China-A Shares Small Cap ETF (NYSEArca: ASHS).
Rival issuers’ desire to boost U.S. investors’ access to A-shares via ETFs comes as mainland stocks are heading toward their best annual gain since 2009, according to Bloomberg. KraneShares, which has gained notoriety due to the success of the KraneShares CSI China Internet Fund (NasdaqGM: KWEB), is expected to launch, later this month, the first ETF holding short-term Chinese commercial paper.
Over the past three months, ASHR, the Market Vectors ChinaAMC A-Share ETF (NYSEArca: PEK) and the KraneShares Bosera MSCI China A-Shares ETF (NYSEArca: KBA) are up an average of 7.2% while the iShares China Large-Cap ETF (NYSEArca: FXI) is off 3%. [Advantages of A-Shares ETFs]
The chasm is even wider when it comes to small-caps. ASHS has surged 14.4% over the past 90 days while the Guggenheim China Small Cap Index ETF (NYSEArca: HAO) is up just half a percent over that period.
ASHR has gained more new assets than any other China ETF since debuting a year ago, according to Bloomberg. ASHR added $31.7 million since the start of this month while ASHS has seen inflows of more than $10 million since the start of the fourth quarter. The small-cap ETFs has nearly quadrupled in size in recent weeks.
One reason A-shares equities have risen in popularity among global institutional investors is reduced correlations to developed and emerging markets stocks.
“An interesting data point to highlight is the lack of correlation the China A market has to other Chinese markets. 11% of the names in MSCI China A are dually listed on the Hong Kong Stock Exchange (Chinese stocks listed on the Hong Kong exchange are commonly referred to as H-Shares). In looking at periods of market stress we find the disconnect between the H-Share and A-Share market noteworthy,” according to KraneShares.
From Sept. 30, 2003 through Sept. 30, 2014, the MSCI China A Index, KBA’s underlying benchmark, had a correlation of just 0.28 to the MSCI Emerging Markets Index and just 0.17 to the MSCI EAFE Index, according to KraneShares data.
China A-Shares Correlations
