China ETF Investors Can Mix And Match Flavors

by: Tom Lydon

Exchange traded fund investors can now directly access Chinese A-shares through Deutsche Bank's latest offering, but traders may have to incorporate other funds to gain total access to China's market.

The db X-trackers Harvest 300 CSI China A-Shares Fund (NYSEARCA:ASHR) has exposure to about two-thirds of the market capitalization of Chinese stocks, reports Eric Balchunas for Bloomberg.

A-shares include Chinese companies incorporated on mainland China that are traded on the Shanghai or Shenzhen exchanges. Foreign investors must qualify as a Renminbi Qualified Foreign Institutional Investor (RQFII) under Chinese regulations to trade A-shares.

Previously, investors could only access Hong Kong or U.S.-listed Chinese companies.

Looking at historic performance, ASHR's underlying index, the Shanghai Shenzhen CSI 300 Index, has underperformed other U.S.-listed China ETFs. Over the past five years, the CSI 300 Index has gained 67%, whereas the S&P China BMI Index, the underlying index for SPDR S&P China ETF (NYSEARCA:GXC), returned 106%.

The under-performance in the CSI 300 Index may be attributed to the heavy emphasis on financial stocks and the S&P China BMI Index's tilt toward outperforming Chinese tech companies.

Since there are currently no single ETFs that provide something like a total Chinese market play, the fastidious investor could include an ETF like GXC, which tracks everything but Chinese A-shares, with ASHR for broader exposure to the Chinese market.

KraneShares also says it is close to launching its own Chinese A-shares ETF, the KraneShares Bosera MSCI China A ETF (NYSEARCA:KBA).

Additionally, rival A-shares products such as the Market Vectors China ETF (NYSEARCA:PEK) and the newly minted, actively managed PowerShares China A-Share Portfolio (NYSEARCA:CHNA) hold swaps on A-shares indices, not actual stocks, though CHNA is seeking RQFII approval.

Max Chen contributed to this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.