Deutsche launches FTSE China A-H 50 Index ETF

Mar 30th, 2016 | By | Category: Equities

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Deutsche Asset Management has launched a new exchange-traded fund, listed on the London Stock Exchange and Deutsche Börse, designed to track the performance of the 50 largest China A-share companies while capturing any price differentials between dual-listed constituents’ mainland A-Shares and Hong Kong H-shares.

New db x-tracker ETF seeks to capture price differential between China A- and H-shares.

Recent data from Deutsche Asset Management suggest China H-shares are trading at an average 27% discount to their A-shares equivalents.

The db x-trackers Harvest FTSE China A-H 50 Index UCITS ETF (DR) tracks the newly launched FTSE China A-H 50 Index (see FTSE Russell unveils index combining China A-Shares and H-Shares) and has been launched in collaboration with Harvest Global Investments who will manage the ETF.

Dual-listed mainland China companies’ shares often trade at different prices despite identical voting rights and dividend payments. According to data from Deutsche Asset Management, as of 31 January 2016, H-Shares on dual-listed stocks were trading at an average 27% discount to their A-Share equivalent.

Commenting on the launch, Marco Montanari, Deutsche Asset Management’s Head of Passive Asset Management, Asia-Pacific, said: “The pricing differential between the A-Shares and H-Shares markets may relate to factors such as capital control measures in the Chinese onshore (A-shares) market, and differences in the investor base.”

He added: “In the long run the price differential may close as China’s capital markets open up, but in the meantime our new ETF is a straightforward way for investors to maintain exposure to the ‘cheaper’ share class of dual-listed companies on an ongoing basis. And if the gap does close over time then those investors that have automatically had ongoing exposure to the lower-priced share classes will benefit.”

The index rebalances on a quarterly basis, screening all stocks every three months to ensure exposure to the lower-priced share classes is maintained. A buffer is utilised during the rebalancing period to prevent switching to a lower priced share class when the trading costs involved in doing so exceed the price benefit from reallocation.

James Sun, Harvest Global Investment’s Chief Executive Officer, said: “In collaboration with our long-standing partner, Deutsche Asset Management, this ETF is another welcome product offering for investors interested in China. The pricing differentials for some constituents are, at present, in the double-digit range. This new ETF is a simple vehicle to access the China market in a more cost-effective way.”

The fund has an annual All-in Fee of 0.65%.

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