As global diversification becomes more prominent in a recovering economic landscape, getting exposure to the second largest economy can be crucial. ETF investors can get concentrated exposure to the best equities in China via the Xtrackers MSCI China A Inclusion Equity ETF (ASHX).

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. The fund has a next expense ratio of 0.60%, but with that, investors get a fund that’s been performing at a stellar rate, with a year-to-date gain of almost 35% based on Morningstar numbers.

ASHX Chart

The ASHX ETF for A-Shares Exposure in China

As China’s economy continues to recover from the pandemic, more exposure to the country can serve as a strong international diversification play for portfolios. Even still, China can still be seen as a value play for ETF investors via ASHX.

Chinese exposure, for the most part, is still underrepresented in the capital markets. Per a CNBC article, “pension funds and endowments have between 3% and 5% allocations to China, according to a Willis Towers Watson report, which cited a recent survey by data analytics firm Greenwich Associates.”

Speaking specifically to A-shares, the article mentioned that the “weightage of Chinese A-shares — or shares that are traded on the mainland — is 5.1% of the MSCI Emerging Markets index as of August 2020, according to the index provider.”

“We just don’t think that’s enough to be fully prepared for the new world order,” said Paul Colwell, head of the advisory portfolio group for Asia at Willis Towers Watson, in the report.

“For investors to properly position their portfolios for the post-Covid world ahead, in the new world order, they need to have more of their investment portfolios allocated into China,” Colwell said. “Geopolitical diversification is going to be a much more important portfolio … consideration in the years ahead.”

A-shares exposure also gives investors an uncorrelated asset for strategic diversification.

“The China A-share market is relatively lowly co-related with developed markets. The Chinese economy operates at a fundamentally different frequency to that of the other major geographies, driven by different approach to monetary policy, economic policy,” Colwell added.

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