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iShares plans to enter China A shares ETF market

The Chinese economy is presently going through an upheaval thanks to issues like credit crunch, shadow banking activities, faltering manufacturing activity and weak domestic market. It is not that the economy has not seen any upbeat data in the recent past. In fact, Chinese manufacturing activity thrived in September despite five-and-half year low industrial activity, the underlying tone remains weak.

However, trouble for one can often prove to be a blessing for another. To boost the struggling economy, China planned a mini-stimulus package a few months back targeting railways and other construction investment. The package is designed to provide tax relief for small enterprises.

Though all its policy measures were so far small in nature and did not seem strong enough to give the needed lift to the economy, the nation is now coming up with bigger packages brightening the appeal for China ETFs.
The central bank recently cut the re-lending rates for agricultural loans by 100 basis points, sanctioned a 20 billion yuan ($3.3 billion) re-lending quota to shore up agriculture and relaxed home buying rules in Hangzhou ─ a Chinese city buckling under pressure from saturation of home inventories.

If this was not enough, the Chinese central bank let each of the nation’s five key state-controlled banks to borrow $16.2 billion to boost soft industrial output and sort out credit crunch issues. In short, China seems steadfast in enhancing domestic consumption and activities.  

All these measures spurred investors toward China A-Shares ETFs. Chinese A-Shares track stocks listed on the Shanghai or Shenzhen exchanges and represents true domestic possibilities. Lately, iShares filed for a fund which seeks to follow the China A-Shares market under the name of iShares MSCI China A ETF.

iShares MSCI China A ETF in Focus

The fund looks to track an index which consists of domestic equities that operate on the Shanghai or Shenzhen Stock Exchange. Constituents of the index mainly comprise consumer discretionary, financials and industrials companies. The expense ratio of the product is yet to be disclosed. The index targets all-cap securities.

How Does it Fit in a Portfolio?

This ETF could be an interesting pick for investors who want direct exposure to the Chinese economy. In normal cases, the A-Shares market is closely held and limited to domestic investors. Foreigners can gain access by becoming a ‘Qualified Foreign Institutional Investor’ or QFII for short, although this too is a pretty small list. However, lately, the nation has made it easier for foreigners to invest in China A-shares.

ETF Competition  

Though the China A-shares space is not teeming, it is definitely growing.  iShares operates the ultra-popular iShares China Large Cap ETF (FXI) in the Chinese space, but it is not made of A-shares.
The renowned issuer has so refrained from entering the space while Deutsche Bank has left its mark with its ETF Harvest CSI 300 China A-Shares Fund (ASHR) last November and db X-trackers Harvest CSI 500 China-A Shares Small Cap Fund (ASHS) this May.
Notably, ASHR appears to be a successful A-shares ETF having amassed about $516 million in assets. There are some other A-shares ETFs like China A-Share Portfolio ETF (CHNA), Market Vectors China A-Shares ETF (PEK) and KraneShares Bosera MSCI China A ETF (KBA) which will likely be the new iShares fund’s competitor, upon approval. However, iShares needs to price its product competitively to see decent inflows at least in the initial days of trading, as this is becoming a very competitive market in the ETF world.
ISHARS-CHINA LC (FXI): ETF Research Reports
DEUTS-XT HV CS3 (ASHR): ETF Research Reports
PWRSH-CHA A-S P (CHNA): ETF Research Reports
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Zacks Investment Research is characterized by a team of experts who are passionate about your investing success and is focused on sharing the same reliable investment research they would want for themselves.

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Zacks Investment Research is characterized by a team of experts who are passionate about your investing success and is focused on sharing the same reliable investment research they would want for themselves.