Fri, 10/01/2014 - 06:02
European exchange-traded fund issuer Source has listed a physically replicated Chinese A-Share ETF on the London Stock Exchange – the first of its kind to be traded in the UK or Europe.
The announcement follows hot on the heels of reports that Deutsche Bank is planning to list a similar product on 16 January.
With valuations of A-shares around 25 per cent 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.
Deutsche Bank 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. Deutsche Bank partnered with specialist Asian asset manager Harvest Global Investments, whereas Source is working with Hong Kong based CSOP Asset Management.
Adam Laird, Hargreaves Lansdown’s passive investment manager, says: “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 DB tracks the broader CSI300. The on-going charge is similar on both funds: 1.1 per cent for the DB X-Tracker vs. 1.15 per cent for Source.
Laird says: “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.”
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