In last week’s issue of the Weekly ETF Report, I mentioned that my job as an investment adviser allows me to review many prospective client portfolios. I also mentioned that I enjoy this process, as it tells me a lot about how investors are approaching the markets, and where there is a distinct concentration of assets, as well as a lack of assets.
One portfolio in particular that I reviewed this week was heavily weighted toward U.S. equities and cash. This situation certainly seems to be the norm these days. While this gentleman’s portfolio was doing pretty well, there wasn’t much diversification, with virtually zero allocation to international markets.
Interestingly, this lack of international exposure was something this prospective client realized. He then asked me which parts of the world I thought were the best in terms of where to start adding international equity exposure.
My first response… China.
As I also mentioned in last week’s issue, China’s equity markets are poised to never be the same again, as China just launched what’s called the “Shanghai-Hong Kong Stock Connect” program. The program allows retail investors around the world to invest in mainland Chinese equities, also known as China’s A-Shares market. The linking of the Shanghai and Hong Kong exchanges will allow approximately 23.5 billion yuan ($3.8 billion) of daily trading between the two markets, and that will essentially open up the mainland China equity markets to an influx of new foreign money.
This influx represents a bullish tailwind that’s been seen in most Chinese ETFs, especially during the past month. The table here shows the top 10 China ETFs by total assets.
|Ticker||Name||1MO%||3MO%||YTD%||Assets in $Millions|
|FXI||iShares China Large Cap||0.56||-7.18||0.22||5,498.93|
|MCHI||ISHARES MSCI CHINA INDEX FD||0.74||-6.72||-1.00||1,214.52|
|GXC||SPDR S&P China ETF||1.84||-5.87||-0.03||964.45|
|ASHR||DB HARVEST CSI 300 CHINA A||5.34||8.92||10.42||530.56|
|PGJ||PowerShares Gldn Dragon Halter China||3.62||-8.54||1.02||261.65|
|HAO||Claymore/AlphaShares China Small Cap||2.74||-1.64||1.62||216.09|
|KWEB||KRANESHARES CSI CHINA INTERNET||6.17||-9.19||9.32||167.37|
|CHIQ||GLOBAL X CHINA CONSUMER ETF||-0.77||-10.66||-15.41||130.50|
|CQQQ||Claymore/AlphaShares China Technology||3.87||-4.88||5.65||71.75|
|YAO||Claymore/AlphaShares China All-Cap||1.87||-6.66||-0.03||51.93|
By far the biggest fund pegged to the China market is the iShares China Large-Cap (FXI). This fund holds the top 50 largest stocks traded on the Hong Kong exchange (the fund’s name was recently changed from the iShares FTSE China 25 Index).
After a nice run higher from mid-March to early September, FXI gave some ground. Since falling to its October low, the shares have staged a modest comeback. Still, FXI hasn’t taken off over the past month the way the DB Harvest CSI 300 China A-Shares (ASHR) has. That fund is up 5.34% during the past four weeks.
Then there are more targeted funds such as the Kraneshares CSI China Internet (KWEB), which has seen its share price rise 6.17% during the past month.
Thanks to the proliferation in recent years of ETFs pegged to China’s various market sectors, investors can get really diverse exposure to the world’s second-largest economy. And while China’s gross domestic product (GDP) growth has plateaued in recent quarters, keep in mind that China is still growing at a 7% pace, and that puts most emerging markets to shame. It also dwarfs U.S. economic growth.
If you’d like to find out how you can diversify your portfolio with the right mix of Chinese ETFs and U.S.-based equity ETFs, I invite you to check out Successful ETF Investing today!