For August, we have highlighted China in our Exchange Traded Fund Snapshot (download it here). The month of July proved to be a real breakout month for Chinese stocks, with the Shanghai Stock Exchange Composite Index surging nearly 7.5%. That’s outstanding on its own, but it is particularly telling considering the S&P 500 sank 1.51% in July.
There currently are more than 30 ETFs that give you exposure to various sub-segments of the Chinese market. This month, we show you the largest China-based ETFs by assets. When choosing an investment vehicle, one important and unique factor to Chinese equities is deciding between ETF exposure to “A-shares” or H-shares. Before the ETF revolution, A-shares were basically available only to domestic Chinese investors. Now, however, both the A-shares and H-shares are available to “foreigners”.
While both types of equities have their particular advantages and disadvantages, the most important thing is to get in on China soon.
Why Consider China?
Investors should consider China-focused ETFs because of valuation, correlation, and technicals.
The most widely followed and liquid A-shares have an average price-to-earnings ratio of about 10. This compares favorably to the S&P 500’s P/E of 18. Even the MSCI Emerging Markets index as a whole trades at a P/E of 17, so with A-shares you get value.
The A-shares have a minimal correlation to the U.S. Market. So theoretically, a correction in the U.S. market should not cause the A-shares to follow suit. However, over the last decade or so the H-shares do have a about a 70% correlation to the US market.
After spending most of 2014 trading below the 200-day moving average, most of the China equity ETFs highlighted below now have spiked back above their respective long-term moving averages, and some funds now trade at new 52-week highs.
To see which funds made our Top China ETFs list, download it today! If you have questions about how China fits into your portfolio or you would like Doug to take a close look at your allocations, please call our offices at 800-391-1118 for a personal consultation.