China’s current position as the second-largest economy could be taking a turn for the better very soon. As the country continues to rebound from the Covid-19 pandemic, China could catapult itself into the top spot, which should put certain exchange-traded funds (ETFs) in focus.

“I think it’s universally acknowledged that China will become the biggest economy in the world, not if it will become the biggest economy in the world,” said Luke Oliver, Head of Index investing for the Americas at DWS Group. “And the thing that gets me every time is that investors are structurally underweight China. Because of historical access issues and liquidity issues, most benchmarks don’t include as much China as they should.”

One fund to look at is the Xtrackers CSI 300 China A-Shares ETF (NYSEArca: ASHR), which seeks investment results that correspond to the CSI 300 Index. The underlying index is designed to reflect the price fluctuation and performance of the China A-Share market and is composed of the 300 largest and most liquid stocks in the China A-Share market. The underlying index includes small-cap, mid-cap, and large-cap stocks.

“So, there is a big upside with China,” he said. “China had its V-shaped recovery complete by Q2 this year and it’s the only country we think will be back on track to its 2019 levels by year-end. Globally, we see 2022. And we just increased our forecast this year from 1% GDP growth to 2[%]. Now, next year, 2021, we’re expecting to be back at 8.5% GDP growth.”

ASHR Chart

ASHR data by YCharts

Here are a couple of other funds to look at:

  • Xtrackers Harvest CSI 500 China-A Shares Small Cap ETF (ASHS): seeks investment results that correspond generally to the performance, before fees and expenses, of the CSI 500 Index. The index is designed to reflect the price fluctuation and performance of small-cap companies in the China A-Share market and is composed of the 500 smallest and most liquid stocks in the China A-Share market. Under normal circumstances, the fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in A-Shares of Chinese small-cap issuers or in derivative instruments and other securities that provide investment exposure to A-Shares of Chinese small-cap issuers.
  • Xtrackers MSCI China A Inclusion Equity ETF (ASHX): seeks investment results that correspond generally to the performance, before fees and expenses, of the MSCI China A Inclusion Index. The fund will normally invest at least 80% of its total assets in securities (including depositary receipts in respect of such securities) of issuers that comprise the underlying index. The underlying index is designed to track the equity market performance of China A-Shares that are accessible through the Shanghai-Hong Kong Stock Connect program or the Shenzhen-Hong Kong Stock Connect program.

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