MSCI decision could boost China ETFs

Added 7th June 2016

China-focused ETFs will be the entry point for foreign investors if the index provider includes A-shares on its key indices, according to Deborah Fuhr, managing partner of UK-based research consultancy ETFGI.

MSCI decision could boost China ETFs

Foreign investors who want China exposure have difficulties getting English language research on onshore stocks, Fuhr told FSA during a recent trip to Hong Kong. Therefore, ETFs would be an ideal way to enter the mainland market.

“People would have a bigger slice of China, leading to a bigger universe of indices. Over time, if people believe that China has to move toward a consumer driven economy, people would start to look at investing in sectors."

ETFs with exposure to China fixed income and money market products might become popular among overseas investors as well due to the mainland's higher interest rates compared to other regions, she added.

Fuhr noted there are currently no smart beta products tracking China, partly due to the lack of relevant indices and also the weaker demand for A-shares since the market collapse in the second half of last year.

Smart beta ETFs go deeper than asset class when investing in equities and allocate according to factors such as dividends, value, momentum and minimum volatility.

“A natural next stage would be launching more smart beta products,” she said.

The index provider is expected to make the decision on June 15th.

A-share interest 

Drivers that could boost the relatively small ETF trading volumes in Hong Kong include the introduction of leveraged and inverse products, she said.

Hong Kong has had several ETF launches already this year from firms including BMO, Amundi, Commerzbank, Samsung Asset Management and China’s CSOP. 

A-share ETFs in Hong Kong have had high trading volume. Among the top five traded ETFs in Hong Kong, three are tracking A-shares: the CSOP FTSE China A50 ETF, iShares FTSE A50 China Index ETF and ChinaAMC CSI 300 Index.

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