China exchange-traded funds (ETFs) offer a way for investors to geographically diversify their portfolios by owning stakes in a basket of companies based in the world’s second-largest economy. Despite the large number of state-owned Chinese enterprises, there are still many companies there whose shares are publicly traded, including Tencent Holdings Ltd. (700), Ping An Insurance Group Co. of China Ltd. (601318), and China Yangtze Power Co. Ltd. (600900).
Certain Chinese stocks were delisted by the New York Stock Exchange (NYSE) after an executive order signed by then-U.S. President Donald Trump in November 2020 banned U.S. investors from investing in Chinese companies with alleged ties to the Chinese military. In May 2022, U.S. President Joe Biden said his administration was reviewing tariffs on China imposed by Trump, with the possibility of dropping them in an effort to lower consumer prices. In late August, Chinese and U.S. regulators announced an agreement to cooperate on inspecting the audit work papers of U.S.- listed Chinese companies. While Chinese companies continue to risk being delisted from U.S. exchanges, this is an important step to resolve ongoing disputes.
China’s gross domestic product (GDP) grew 2.3% in 2020 as the economy began to rebound by the end of the year from the disruptions caused by the COVID-19 pandemic. Still, that growth rate was the lowest in decades. China's GDP rebounded sharply in 2021, growing by 8.1% largely due to strong industrial production. But ongoing COVID-19 concerns and geopolitical issues have hampered the recovery. China's GDP grew by just 0.4% for Q2 2022, with analysts estimating 3.4% growth for the full year.
- Chinese equities significantly underperformed the U.S. stock market over the past year.
- The China exchange-traded funds (ETFs) with the best one-year trailing total returns are CNYA, KBA, and ASHR.
- The top holding of each of these funds is Class A shares of Kweichow Moutai Co. Ltd.
There are 17 China ETFs that trade in the United States, excluding inverse and leveraged ETFs as well as funds with less than $50 million in assets under management (AUM). Chinese equities, as measured by the MSCI China Index, have significantly underperformed the U.S. stock market over the past 12 months, posting a total return of -29.9% compared to the S&P 500’s total return of -11.0%, as of Sept. 1, 2022. The best-performing China ETF for the fourth quarter (Q4) of 2022, based on performance over the past year, is the iShares MSCI China A ETF (CNYA).
We examine the three best China ETFs below. All numbers below are as of Sept. 2, 2022. In order to focus on the funds' investment strategy, the top holdings listed for each ETF exclude cash holdings and holdings purchased with securities lending proceeds except under unusual cases, such as when the cash portion is exceptionally large.
- Performance Over One-Year: -21.4%
- Expense Ratio: 0.60%
- Annual Dividend Yield: 0.98%
- Three-Month Average Daily Volume: 167,363
- Assets Under Management: $522.9 million
- Inception Date: June 13, 2016
- Issuer: BlackRock Financial Management
CNYA tracks the MSCI China A Inclusion Index. The fund holds hundreds of stocks with a broadly diverse basket of names. Financials, consumer staples, and industrials stocks are the top three sectors by portfolio representation, accounting for about half of invested assets. This large-cap fund follows a blended strategy, including both value and growth stocks in its holdings. The top three holdings of CNYA are Class A shares of: Kweichow Moutai Co. Ltd. (600519:SHG), a partially state-owned Chinese spirits manufacturer; Contemporary Amperex Technology Co. Ltd. (300750:SHE), a Chinese battery maker and technology company; and China Merchants Bank Co. Ltd. (600036:SHG), a commercial bank.
- Performance Over One-Year: -21.6%
- Expense Ratio: 0.56%
- Annual Dividend Yield: 0.64%
- Three-Month Average Daily Volume: 342,989
- Assets Under Management: $611.4 million
- Inception Date: March 4, 2014
- Issuer: CICC
KBA targets the MSCI China A 50 Connect Index, which is comprised of 50 large-cap stocks listed in Shanghai and Shenzhen. The fund includes some of China's largest, most liquid stocks that receive the most foreign interest and inflows, including those that may benefit from increased global investment in China’s onshore market over the long term. KBA focuses on a blend of value and growth stocks. The top holdings of KBA include Class A shares of Kweichow Moutai, Contemporary Amperex Technology, and LONGi Green Energy Technology Co. Ltd. (601012:SHG), a Chinese maker of photovoltaic solar modules.
- Performance Over One-Year: -22.5%
- Expense Ratio: 0.65%
- Annual Dividend Yield: 0.84%
- Three-Month Average Daily Volume: 6,381,852
- Assets Under Management: $1.7 billion
- Inception Date: Nov. 6, 2013
- Issuer: DWS
ASHR seeks to track the CSI 300 Index, an index comprising 300 large- and mid-cap China A-Share stocks listed on the Shenzhen or Shanghai Stock Exchange. ASHR is one of the oldest ETFs providing direct exposure to stocks on either of these exchanges, and the sizable trading volume and AUM reflect this. Because its focus is on the Shenzhen and Shanghai exchanges, ASHR does not include stocks listed outside mainland markets, such as companies listed in Hong Kong. Financials, industrials, and consumer staples stocks make up the largest portions of the fund's portfolio. The top holdings of ASHR include Class A shares of Kweichow Moutai, Contemporary Amperex Technology, and Ping An Insurance (Group) Company of China, Ltd. (601318:SHG), a conglomerate offering insurance, banking, asset management, financial, and other services.
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