It’s easy to write off China stocks these days. The recent hiccups with regards to China’s economic growth have caused equities in the nation to fall hard. The popular China stocks proxy — the iShares China Large-Cap ETF (FXI) — is still down around 27% since this past summer when Beijing took the steps to devalue its currency amid stalling growth.
However, the biggest hit were Chinese A-shares.
China stock A-shares can be thought of as the “real” Chinese stock market. These are firms which are incorporated on the mainland, listed on the Shanghai and Shenzhen exchanges and are denominated in renminbi, the local currency. And for most of us, they are strictly off-limits to buy and trade. Only certain institutional investors are allowed to dabble in the A-shares market.
That is, until now. There are now a whole bunch of exchange-traded funds betting on China stock A-shares.
And there are plenty of reasons why long-term investors may want to snag some Chinese A-shares. Truth is, China is still an economic tour de force and one of the most important economies in the world.
Many of the long-term reasons for buying China stocks in the first place — such as its large, growing middle-class population — are still in place, and A-shares offer a chance to bet on the “real” domestic China and profit from its long-term growth potential.
Here’s three A-share ETFs to bet directly on China stocks.
China Stocks A-Shares ETFs #1: Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ASHR)
The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ASHR) is not only the first ETF to bet directly on Chinese A-shares, it’s also one of the best.
ASHR tracks the CSI 300 Index, which is a measure of the 300 largest and most liquid stocks trading on the Shanghai and Shenzhen exchanges. And while the names of the ETFs top holdings may not sound familiar — Ping An Insurance Group, China Yangtze Power for example — they are some of the biggest firms in their respective industries.
It’s just that you never had access to them before.
The cool thing about ASHR is that the ETF owns shares of the restricted A-shares directly. Most rival funds use swaps to accomplish their goals. Fund sponsor Deutsche Bank (DB) (through an investment in China’s Harvest Fund Management) has been granted the coveted “qualified foreign institutional investors status” to purchase A-shares on Chinese exchanges.
Performance of the ETF has been a roller coaster. Over the last 52 weeks, the fund is up around 43%. However, it did log gains as high as 108% before the recent downturn. A big plus of investors during that time have been the expenses for the fund — which have gone down as assets under management have swelled to more than $583 million.
ASHR costs just 0.80%, or $80 per $10,000 annually.
China Stocks A-Shares ETFs #2: Market Vectors ChinaAMC SME-ChiNext ETF (CNXT)
When it comes to any nation, small caps can be seen as direct bets on the local economy. After all, many large caps are really multinationals who receive sales and profits from many foreign places. Small caps … not so much. They just don’t have that kind of distribution ability.
The vast bulk of small-cap China stocks are actually listed as A-shares and that’s why the Market Vectors ChinaAMC SME-ChiNext ETF (CNXT) could be a great long-term bet.
CNXT tracks the SME-ChiNext 100 Index. This measure follows the 100 largest and most liquid A-shares on the Small and Medium Enterprise and ChiNext Board of the Shenzhen Stock Exchange. Basically, the ETF provides non-government controlled/owned exposure to the Chinese local economy and its citizens.
You also get a hefty dose of innovation and growth potential. Top sector weightings for CNXT include information technology (31%), consumer discretionary and staples (21%) and health care (14%). That’s completely different than many traditional China stock indexes and ETFs, including the previously mentioned FXI. This makes CNXT a powerful tool to play China’s switch from a boring manufacturing-based economy to one of consumer demand and high-tech gadgets.
So far, that’s been working. Even with the rout, CNXT is up around 31% since launching in late 2014.
CNXT charges just 0.66%.
China Stocks A-Shares ETFs #3: CSOP MSCI China A International Hedged ETF (CNHX)
One of the initial reasons for the fall in China stocks in the first place was Beijing’s surprise currency devaluation. Currency movements actually result in huge return differences for investors betting on international stocks. The difference in how currencies perform vs. each other — translating buys in local currencies vs. fund holdings in another — can actually make gains into loses.
China stocks and A-shares are no different. Luckily, there’s a whole suite of ETFs designed to take the sting of currency movements out of the picture.
The CSOP MSCI China A International Hedged ETF (CNHX) does just that for A-shares. CNHX tracks the MSCI China A International Index — which includes all the Chinese A-shares listed on both the Shanghai Stock Exchange and Shenzhen Stock Exchange. The ETF then uses swaps and forwards to hedge 100% of the currency risk away. What you are left with is “pure” stock exposure, as the extra bumps caused by the volatile interaction between the renminbi and U.S. dollar are removed.
Now, CNHX is brand new — launching just at the end of October. However, the hedging feature could prove worthy if the dollar continues to be a superstar vs. other currencies and rises steadily.
Expenses for the China stocks ETF cost just 0.79%.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.