Fueling the divergence in correlation between the various share classes, H-shares have a heavy tilt toward the financial sector as most Chinese banks and insurance companies tend to list on the Hong Kong Exchange to access international capital.
Meanwhile, the share class that represents the largest portion of the Chinese economy is the A-shares class, which comprises over two thirds of the total Chinese equity market.
To help remedy investors’ underexposure to China’s domestic equities, the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO), which tracks the FTSE Emerging Markets All Cap China A Inclusion Index, was the first broad market-cap-weighted index fund to include both all-cap exposure and China A-shares.
China currently makes up 28.0% of VWO’s underlying portfolio. When FTSE initially added China A-shares to its emerging market benchmark, A-shares made up approximately 5% of the portfolio and was expected to eventually make up 50% of the FTSE Emerging Index once A-shares were fully available to international investors.
Alternatively, investors can also gain direct exposure to A-shares through ETF options that track China’s benchmarks. For example, the CSI 300 Index serves as the underlying benchmark for the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (NYSEArca: ASHR), the largest U.S-listed A-shares ETF, and the Market Vectors ChinaAMC A-Share ETF (NYSEArca: PEK), the oldest A-shares ETF trading in the U.S.
For more information on the Chinese markets, visit our China category.