The ETF progenitors, State Street Global Advisors, have added another SDPR to their line of popular ETFs.
Today SSgA announced that the SPDR MSCI China A Shares IMI ETF (NYSEarca: XINA) began trading and offers U.S. domiciled investors the opportunity to access A shares of companies incorporated in mainland China. Previously this ETF had only been accessible to investors living in mainland China. The fund has an expense ratio of 0.65%.
“Given that China is both the second largest economy and the second largest equity market in the world, we feel it’s important to have exposure in your portfolio,” said Michael Arone, chief investment strategist for State Street Global Advisors’ US intermediary business. “Broader exposure, with the benefits of diversification may be valuable in the long term as these market developments create potentially long-term investment opportunities for A shares even as short-term volatility may remain high.”
The ETF comes at a difficult time for China in the markets. Speculation of further growth slowdown and increased volatility have led to outflows from the previously red-hot country’s equity market. State Street, like many institutional investors, hasn’t been deterred by the tumult though. They take a long-term view that sees plenty of further growth in China despite the recent pullback from its June 2015 peaks.
In a research note that delves into why State Street believes China A shares are essential exposure to a balanced portfolio they describe the motivation behind XINA, “Still, despite the recent market gyrations, the China A share market is a vital portal into one of the most compelling long-term secular growth stories in the world today. The “wealth effect” from the recent A share sell-off and a greaterthan-expected slowdown could have an impact. Yet, China’s economy is projected to grow at an annualized rate of 6.9 percent in the second half of 2015, 6.9 percent for the full year in 2015 and 6.7 percent in 2016,3 or roughly twice the rate of the US. Over the longer term, China is expected to overtake the US as the world’s largest economy by 2025.4 China is in the midst of a difficult transition from an economy based on exports and investment to one based more on consumer spending and entrepreneurship. But as the country continues to reorient around this more sustainable growth model, we believe the A share market remains the most direct way of accessing the kinds of companies that stand to benefit most from the shift.”
XINA is seen by State Street as complimentary to other Chinese exposure that may already exist in portfolios and a companion piece to their SPDR S&P China ETF (NYSEarca: GXC). XINA covers a part of the Chinese equity market that isn’t commonly represented in indices or funds.
China A shares actually have a relatively low correlation to both GXC and broad U.S., developed, and emerging market equities. Below is a correlation chart that State Street produced to display the correlation between the China A shares market and other popular indexes.
Figure 2: Correlations to China A Shares (as represented by CSI 800 Index)
|CSI 800 Index||1.00|
|S&P China BMI Index||0.64|
|FTSE China A50||0.62|
|CSI 300 Index||0.98|
|CSI Smallcap 500 Index||0.89|
|MSCI Emerging Markets||0.41|
|MSCI AC World IMI||0.30|
Further info can be found in their info piece released with the ETF’s marketing material.