Physical China A-shares ETFs go head to head

Jan 9th, 2014 | By | Category: Equities

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Source, one of Europe’s largest exchange-traded fund (ETF) issuers, has listed a physically replicated Chinese A-shares ETF on the London Stock Exchange. This is the first of its kind to be traded in the UK or Europe.

Physical China A-share ETFs go head to head

DeAWM and Source have teamed up with Asian asset managers holding the RMB Qualified Foreign Institutional Investor (RQFII) license, necessary to invest directly in China A-shares.

The listing follows hot on the heels of an announcement from Deutsche Asset & Wealth Management (DeAWM), which plans to list a similar product on 16th January.

With valuations of A-shares around 25% lower than their long-term average, investors may be keen to access onshore listed Chinese companies. China has restrictions on foreign share ownership which has prevented products including ETFs from physically holding A-shares. Most investors access China through H-Shares, the class of company share listed on the Hong Kong Stock Exchange.

DeAWM and Source have teamed up with Asian asset managers holding the RMB Qualified Foreign Institutional Investor (RQFII) license, necessary to invest directly in A-shares. DeAWM has partnered with specialist Asian asset manager Harvest Global Investments, whereas Source has collaborated with Hong Kong-based CSOP Asset Management.

Adam Laird, passive investment manager at financial services group Hargreaves Lansdown, said: “A-share ETFs have been popular in the US and give investors a new way to access Chinese companies. There is a lot of opportunity in China and funds of A-shares contain many companies that investors cannot access through other products. Like all Emerging Markets, however, there are risks – these shares can be volatile and illiquid at times.”

Source’s product tracks the FTSE China A50 Index, covering the largest 50 stocks, whereas DeAWM’s tracks the broader CSI 300. The annual expesnes are similar on both funds: around the 1.1% mark.

Laird added: “It is normally better to look at diversified products, covering more stocks, but both indices give a good coverage of the market. It is important to remember that neither of these indices cover Hong Kong-listed shares, which have performed better in the last few years. These products could be combined with other Chinese ETFs to give a broad exposure to China.”

Across the pond, in the US, a similar China A-shares battle is raging with DeAWM’s NYSE Arca-listed product, the db X-trackers Harvest CSI 300 China A-Shares ETF (ASHR), set to receive stiff competition from Market Vectors’ recently renamed Market Vectors ChinaAMC A-Share ETF (PEK), sub-advised by ChinaAMC, and the KraneShares Bosera MSCI China A Share ETF (KBA), a collaboration between China specialist KraneShares and local manager Bosera Asset Management.

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