ETF of the Week: Xtrackers CSI 300 China A-Shares ETF (ASHR)

ETF Trends CEO Tom Lydon discussed the Xtrackers CSI 300 China A-Shares ETF (ASHR) on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show.

ASHR was the first U.S.-listed ETF to offer direct exposure stocks listed in mainland Chinese markets in Shenzhen and Shanghai.

ASHR tracks an index of 300 biggest and most liquid stocks. Unlike some other ETFs that use derivatives to mimic A-shares, ASHR buys the stocks directly. ASHR has weathered significant disruptions in the A-shares market, but investors should be aware that tracking can diverge from the index. Investors should be aware that ASHR does not invest in Chinese companies listed outside mainland markets, so popular stocks listed solely in Hong Kong won’t be in its portfolio.

China is now better positioned for post-pandemic growth than the developed markets. The International Monetary Fund projects China to overtake the U.S. as the largest economy in the next few years. Over the short term, China experienced a deep recession along with other global economies during the coronavirus pandemic.

However, China also experienced the shortest recession observed globally due to Beijing’s efficient containment of the contagion, with DWS now projecting the economy to grow to 2% from 1% in 2020. China is the only G-20 economy expected to expand this year. Additionally, longer-term decoupling between the U.S. and China will likely lead to parallel economic and technological “spheres of influence.”

A Growth Story Years In The Making

The Chinese economy has stood out among the emerging markets. While income per capita has only doubled over the past ten years in India, it has increased tenfold in China. Chinese millennials have been the central drivers for the global economy. Those ages 16 to 35 in China make up 415 million of the population, compared to 207 million in Europe and 146 million in the U.S.

The country’s emerging middle-income class has contributed to a booming $261 billion tourism industry. U.S. tourism only contributes $122 billion. Among its key industries, China’s technology segment has quickly developed and is beginning to overtake the U.S. Among its 1.4 billion population, 772 million Chinese users have access to the internet, 717 million users have smartphones, 763 million users have mobile internet, and 527 million utilize mobile payments. This leaves room for growth.

In the digital economy, the 5G applications market may exceed RMB 6tn in 2021. The AI market could exceed RMB 200bn in 2021, online education growth is likely to exceed 15%, and E-commerce live streaming could exceed 20% of total online sales.

The country is shifting its focus back on its domestic economy by raising chip self-sufficiency from 30% to 70% in 5 years, reducing dependency on soybean imports by changing domestic production and consumption, and substituting overseas travel with domestic tourism.

China A-shares For Further Diversification

Capital market reforms in China have made it easier to invest in the Chinese market, with foreign investments making its way into mainland Chinese markets as Beijing loosens controls. Opportunities in mainland China A-shares provide access to fast-growing firms in China, a domestically driven market, policy support, and further diversification.

Consider the diversification benefits of including exposure to China A-shares as many traditional emerging markets and China funds have little to no exposure to mainland A-shares. Instead, most emerging market-related funds track Hong Kong-listed shares or NYSE-listed shares.

Most China-related funds may show varying company and sector weights that do not reflect the scope of the Chinese mainland markets.

Listen to the full podcast episode on the ASHR ETF:

For more podcast episodes featuring Tom Lydon, visit our podcasts category.