After Volatility, Opportunity in A-Shares ETFs

The old investing maxim about when there is blood in the streets being a good time to buy might prove prophetic when it comes to China A-shares exchange traded funds.

Indeed, A-shares ETFs have taken their lumps in recent weeks while Beijing has proven ineffective in stemming the declines, but those recent woes could be opening the door for prescient advisors and investors to snatch up shares of funds such as 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 Fund (NYSEArca: ASHS).

“We believe investors should take a step back from the recent volatility of the Chinese market and shift their focus instead to a longer-term assessment – one that incorporates ten years of data. Using this perspective, we hope to show that China A-shares have been a valuable source of diversification,” said Deutsche Asset & Wealth Management head of ETF Strategy Dodd Kittsley in a recent research note.

The Chinese economy, the second largest in the world, will still expand at a relatively high rate, albeit slightly slower than prior years. Investors can also tap into the rising growth story through A-shares ETFs. For instance, consumption could account for a greater portion of gross domestic product growth. China added 13.2 million urban jobs last year, which suggests increased urbanization and potential for continued consumption growth. The greater migration into cities would add to economic growth on increased demand for infrastructure and services. Meanwhile, the investment-to-GDP ratio has edged lower, indicating that the Chinese are buying more instead of saving. [Contrarian Opportunity With China ETFs]

Some market observers remain supportive of the long A-shares thesis, noting that the Chinese government still has more bullets left to fire if the situation deteriorates. So far, policy makers have suspended initial public offerings, relaxed margin trading rules, diminished transaction fees and directed state-run institutions to maintain or add domestic equities positions – a group of 21 brokerages recently crated a 120 billion yuan, or $19.3 billion, market support fund. [FTSE Move Lifts A-Shares ETFs]