CSOP Asset Management, ChinaAMC, and E Fund Management have all launched new ETFs on the Stock Exchange of Hong Kong that target Chinese large-cap A-share equities by tracking the MSCI China A50 Connect Index.
The ETFs target large-cap Chinese A-shares while ensuring sector diversification.
The CSOP MSCI China A50 Connect ETF (3003 HK) has been listed in Hong Kong dollars and comes with a management fee of 0.99%.
The ChinaAMC MSCI China A50 Connect ETF, meanwhile, has been listed in Hong Kong dollars (2839 HK), US dollars (9839 HK), and Chinese renminbi (82839 HK). The fund’s management fee is 0.30%.
Finally, the E Fund (HK) MSCI China A50 Connect ETF has been listed in Hong Kong dollars (3111 HK) and Chinese renminbi (83111 HK). Its management fee is the cheapest of the three at just 0.25%.
Methodology
The MSCI China A50 Connect Index selects its constituents from a universe of Chinese A-share companies that are accessible on the Northbound Stock Connect channel.
The methodology first selects the two largest eligible stocks from each GICS sector and then continues to select the largest stocks from the remaining universe until the 50 constituent count is reached.
Constituents are weighted by float-adjusted market capitalization on a quarterly basis while setting the weight of each GICS sector equal to its weight in the parent MSCI China A Index.
According to MSCI, the methodology delivers an index that provides a diversified measure across the Chinese economy while ensuring that the leaders from each sector are represented.
The launch of the new ETFs follows the Stock Exchange of Hong Kong’s introduction in October 2021 of futures contracts based on the MSCI China A 50 Connect Index. These futures contracts, designed for offshore investors, represent the first officially recognized risk management tools for Stock Connect-eligible A-shares.
Due to the presence of futures based on the underlying index, the ETFs are expected to reap certain benefits including lower tracking errors and bid-ask spreads given that market makers can directly hedge their exposure and lower creation/redemption fees for authorized participants transacting in large blocks of shares.