The Best ETFs for the Shanghai Composite Index

China’s economy has been growing at a swift rate for many years, making it one of the world's strongest markets for rapid growth. And despite a few bumps along the way, many analysts believe it is poised to overtake the U.S. as the largest economy in the world.

China has been growing rapidly since it initiated market reforms in 1978. Its gross domestic product increased by 1.5% in the fourth quarter of 2019, versus an increase of 0.5% in the U.S. Meanwhile, China’s unemployment rate was 6.2% at by February 2020, its highest rate in months.

Key Takeaways

  • Foreign investors looking to invest in China can look to ETFs that track the Shanghai Composite Index and follow all of the class A and class B shares that are listed on the Shanghai Stock Exchange.
  • Some of the largest holdings of the Shanghai Composite Index include China Petroleum & Chemical, PetroChina, Agriculture Bank of China, Industrial and Commercial Bank, and China Life.
  • Although several options exist, the Deutsche Xtrackers Harvest CSI 300 China A-Shares Exchange ETF (ASHR) is one of the most popular ways to invest in Chinese stocks.

The Shanghai Composite

The Shanghai Composite Index, launched in 1991, follows all of the class A and class B shares that are listed on the Shanghai Stock Exchange, which is the biggest stock exchange in mainland China. As of April 18, 2020, it’s down over 6% since the start of 2020. Among its largest stocks are Kweichow Moutai Co, PetroChina, Industrial and Commercial Bank, Agriculture Bank of China, Bank of China, and China Merchants Bank. 

The Shanghai Composite Index is one of the most often-cited indices to measure the economic health of China, but foreign investors generally do not have direct access to investing in it because of tight controls by Chinese authorities. Instead, they must turn to exchange-traded funds (ETFs).

The Top Shanghai Composite ETF

One of the most popular ways to invest in Chinese stocks is through the Deutsche Xtrackers Harvest CSI 300 China A-Shares Exchange ETF (ASHR). This fund allows U.S. investors to invest in China Class A shares listed on Shenzhen and Shanghai exchanges through a partnership with Deutsche Bank and Harvest Global.

ASHR is down almost 10% so far this year and includes stocks from a variety of sectors, but it is heavily weighted toward the financial services industry. Its holdings are comprised of about 31.16% in financial services, 13.39% consumer staples, 11.49% industrials, 10.4% technology, and 8.84% consumer discretionary.

The ETF's top holdings include Ping An Insurance, China Minsheng Banking Corp. Ltd, Kweichow Moutai Co. Ltd., Industrial Bank Co., Ltd., China Mingsheng Banking Corp. Ltd., China Vanke Co., Bank of Communications Co., and Jiangsu Hengrui Medicine C-A.

Other Options for Chinese ETFs

While the Harvest CSI 300 China-A Shares Exchange is likely the most direct way to follow Shanghai-listed shares, plenty of other ETFs can help investors follow the growth in Chinese stocks.

They include the VanEck Vectors ChinaAMC CSI 300 ETF (PEK), KraneShares Bosera MSCI China A ETF (KBA), and COSP FTSE China A50 ETF (AFTY).

The VanEck Vectors ChinaAMC CSI 300 ETF follows the performance of the CSI 300 Index, which includes the 300 largest stocks in the Chinese Class-A share market. This fund is down about 13% so far in 2020.

KraneShares Bosera MSCI China A ETF is down more than 5% year to date. It tracks the MSCI China A International Index that follows large-cap and mid-cap Chinese stocks on the Shenzhen and Shanghai Stock Exchanges.

Finally, the CSOP FTSE China A50 ETF tracks 50 large-cap stocks across 10 sectors. It’s down almost 10% so far this year.

The Bottom Line

If you want to invest in the Shanghai Composite Index with access to China’s A-Share stocks, first consider Harvest CSI 300 China-A Shares Exchange. But other ETFs offer a way to invest in China’s rapidly growing economy as its markets slowly open to foreign investments.

Article Sources

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