Bargain hunter investors who are interested in gaining exposure to Chinese markets should think about a few considerations before diving into a China ETF.
“We’ve got the index inclusion, which has taken the headlines, but more importantly than that is the fundamental story behind China,” Luke Oliver, Managing Director and Head of Capital Markets at DWS, said at the 2018 Morningstar Investment Conference.
Many investors and financial advisors remain underallocated to China as a part of their diversified international investment portfolio. Investors may include some China exposure as part of their emerging market position, but China A-shares, or company stocks that trade in mainland China, remain woefully underallocated in many investment portfolios.
However, things are changing as MSCI Indices begins incorporating China A-shares into its international indices, most notably its benchmark emerging market index.
“We want people to start looking at other ways that access China right now,” Oliver said.
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The move is seen as beneficial to an array of China A-shares exchange traded funds, including the Xtrackers Harvest CSI 300 China A-Shares ETF (NYSEArca: ASHR). These ETFs track China-listed company stocks on the Shanghai and Shenzhen Stock Exchanges. However, these broad China A-shares ETFs remained in the slumps Friday.
Investors widely expect billions of dollars could help support Chinese A-shares ahead as global money managers adjust their positions to better reflect the new emerging market benchmark changes.
Close to 230 China A-shares appeared on index provider MSCI’s emerging markets benchmark. The partial inclusion of the A-shares, or yuan-denominated stocks traded on mainland stock exchanges, to MSCI’s widely observed Emerging Markets Index will take place in two phases, with the second phase coming in August.
However, the first wave of inclusions only makes up half a percent. MSCI is gradually bringing in China A-shares into its index, and full inclusion would make A-shares account for 16% of the EM index and push China to 42% of the benchmark.
“There is no practical reason advisors can’t start allocating larger sizes into China right now,” Oliver said.
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