While looking for areas of opportunities, investors may want to consider the overlooked Chinese markets and China A-shares exchange traded funds.
“A shares have shown remarkable resilience in the recent volatility, outperforming their Hong Kong based peers considerably,” Luke Oliver, DWS Managing Director, Head of Index Investing, Americas, told ETF Trends.
Over the past month, the Xtrackers Harvest CSI 300 China A ETF (NYSEArca: ASHR) increased 1.6%, whereas the iShares MSCI Hong Kong ETF (NYSEArca: EWH) dipped 1.7%.
Oliver also highlighted the potential for greater demand, especially among international investors, as China opens up its markets.
“With regulators further opening up China markets by removing limits on international quotas, we could expect index providers to step up index inclusion and spur more flows in China A shares,” Oliver added.
The ongoing initiatives of Chinese authorities have helped improve global investor access to Chinese A-shares through reforms such as the Qualified Foreign Institutional Investor (QFII) and Renminbi Qualified Foreign Institutional Investor (RQFII) initiatives.
Looking ahead, investors will have more investment options to choose from when considering China equities as the second round of its quality issues, China A Shares, is included in the FTSE Russell global equity indexes.
In the latest round of China A Shares inclusion, FTSE Russell’s implementation of Tranche 2, or 40% proportion, has taken place. The inclusion began in June 2019 and follows ongoing enhancements to China’s market access, governance standards and regulation. FTSE Russell’s implementation of China A Shares to its global equity benchmarks is scheduled across three separate tranches.
China A Shares are now part of the FTSE Emerging Index, tracked by approximately $140 billion in assets under management. China A Shares will represent approximately 5.5% of the FTSE Emerging Index once fully implemented in Phase 1 in March 2020.
As major indexers incorporate China A Shares into widely observed benchmarks, asset managers may also follow suit and raise demand for mainland Chinese shares, or further strengthen price gains ahead.
For more information on the Chinese markets, visit our China category.