This, among other reasons, has resulted in a 12% correction on the Hang Seng and a 14.9% fall on the Shanghai Composite Index. However, things are starting to look a little better now, at least from a technical point of view, with market timing indicators implying the potential for a turnaround.
Still, with an economy like that of China’s, with the spectre of snap interest rate rises to counter inflation/house price boom and the routine manipulation of economic data, risks are higher than that of a Western economy, so investors need to keep a close eye on their investment.
There are quite a number of exchange-traded funds available that will give broad exposure to the Chinese markets. Some will be fully replicated while others will be swap-backed. I have highlighted two such ETFs, ranked by size of assets under management that will give investors a liquid and highly tradable way into this region.
iShares China ETF
The iShares China ETF is by far the largest of the available selections for investors. At £615m, it has almost three times the equivalent AUM of its nearest rival, Deutsche Bank. The fund is fully replicated and is rebalanced quarterly and distributes income in dollars at the annual rate of 1.37%.
Investors should therefore note that there is no currency hedging in-built and thus currency risk is inherent.
The fund’s top sector holdings are predominantly financial at 52%, followed by telecommunications at 17% and oil & gas at 15%, basic materials at 13%, industrials at 2% and consumer services at 1%.
It has a total expense ratio of 0.74%.
The db x-Trackers FTSE China 25 ETF
The db x-trackers FTSE China 25 ETF is a swap-backed fund whose swap counterparty is its parent, Deutsche Bank. Much criticism has been targeted at this structure over recent weeks from various regulatory and market experts alike, but I highlight this particular ETF as a viable alternative to the iShares one.
Income is reinvested but since the underlying fund currency is the dollar, there is currency risk attached just like there is with the iShares ETF.
A slightly lower TER (0.6%) does not preclude what seems to be a significant under-performance of this ETF over that of iSahres one. As mentioned, the dividend is reinvested and, according to the db x-trackers website at least, the yield stands at 2.3%.
