China is often tipped as the world’s biggest economy, replacing the United States. If this is so, how do you take advantage of this massive global change? Even if you do not know how to pick a Chinese stock, you can be well rewarded in the future by buying China ETFs now. Currently, the ETFs are 50% below their peak.
There are a handful of China ETFs in the market and I put forth 4 of them here:
1) iShares FTSE/Xinhua China 25 Index Fund
Objective: To track the FTSE/Xinhua China 25 Index which consists of 25 largest and most liquid Chinese companies. All 25 companies are traded at the Hong Kong Stock Exchange.
Current Top Ten Holdings:
10.09% China Mobile
8.63% China Life Insurance
7.59% Ind & Comm Bank of China
6.94% PetroChina
6.19% China Construction Bank
4.81% China Petroleum & Chemical
4.36% CNOOC
4.32% China Communications Const
4.19% China Shenhua Energy
3.93% China Telecom
Annual Fees: 0.74%
Listed in: New York Stock Exchange and major EU stock exchange
For more information, visit iShares website.
2) Lyxor ETF China Enterprise (HSCEI)
Objective: Aims to track the Hang Seng China Enterprises Index which comprises of the biggest 42 Chinese companies listed on Hong Kong Exchange with H-share status.
Current Top Ten Holdings:
13.89% China Construction Bank
13.03% Ind & Comm Bk Of China
10.99% China Life Insurance
10.00% Petrochina
6.23% Bank Of China
6.08% China Petroleum Chemical
5.21% Bank of Communications
3.51% China Shenhua Energy
3.11% Ping An Insurance
2.98% China Telecom
Annual Fees: 0.65%
Listed in: Singapore Stock Exchange
For more information, visit LyxorETF website.
3) SPDR S&P China ETF
Objective: Aims to track S&P China BMI Index which consists of companies domiciled in China but legally available to foreign investors.
Current Top Ten Holdings:
15.43% China Mobile
7.20% China Life Insurance
6.02% China Construction Bank
5.81% Industrial & Commercial Bank China
5.72% Petrochina
4.32% CNOOC
3.41% China Petroleum & Chemical
2.23% China Shenhua Energy
2.21% Ping An Insurance
2.08% Bank of China
Annual Fees: 0.6%
Listed in: New York Stock Exchange
For more information, visit SPDR website.
4) Powershares Golden Dragon Halter USX China Portfolio
Objective: To track Halter USX China Index which composed of US-listed securities of companies that derive a majority of their revenue from China.
Current Top Ten Holdings:
6.26% China Mobile
5.90% Petrochina
4.99% China Netcom Grp
4.98% China Unicom
4.90% China Life Insurance
4.57% China Telecom
4.46% Baidu.com
4.45% China Petroleum & Chemical
4.42% Huaneng Power International
4.35% CNOOC
Annual Fees: 0.66%
Listed in: American Stock Exchange
For more information, visit Powershares website.
My Take
Xinhua 25 is probably the most famous China ETF and is analogous to Dow Jones Industrial Index, where it indexes only the biggest companies (blue chips) in the country. The disadvantage is that it concentrates only on a small basket of stocks, and hence, limited diversification. Another disadvantage is its cost, highest among the 4.
Both iShares and Lyxor are heavy on financial sector which are rather skewed for an ETF in my opinion. Moreover, both are only able to trade Chinese companies in Hong Kong Stock Exchange. There may be high growth Chinese companies listed only in China and would be missed out by these funds. Likewise for Powershares, where the companies have to be listed in U.S. before the fund can invest in it.
My preference would be SPDR S&P China BMI Index Fund as it tracks a Chinese Index, which means you are closest to the land of the rising sun. The major inconvenience for retail investors who are interested to invest in Chinese companies is the access to the Chinese market. This fund solves the problem and allows you to buy into 150 Chinese companies, listed in the country itself.
You may be interested to read the following posts:
America an “undeveloped” nation by 2012
Jim Rogers’ pick on Chinese companies
Warren Buffett is buying American stocks now
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- Warren Buffett is buying American stocks now
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- Straits Times Index Exchange Traded Fund (STI ETF)
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{ 10 comments… read them below or add one }
Hi Alvin,
Greeting to you, enjoyed reading your blog once again. Like you, i was keen in exploring in China. Your article really come in handy but since i am just a newbie to stock. How should i go about if i were to explore SPDR S&P China BMI Index Fund since you mentioned New York Stock Exchange. It been a couple of months since i engage the STI ETF, very excited about it.
You may wish to conduct me at kurt_629@yahoo.com
Hi Alvin,
Greeting to you, enjoyed reading your blog once again. Like you, i was keen in exploring in China. Your article really come in handy but since i am just a newbie to stock. How should i go about if i were to explore SPDR S&P China BMI Index Fund since you mentioned New York Stock Exchange. It been a couple of months since i engage the STI ETF, very excited about it.
You may wish to conduct me at kurt_629@yahoo.com
Thank you Kurt.
You can check with your broker whether you are able to trade in U.S. market. If not, ask if you can open a U.S. shares trading account. There are couple of forms and procedures to go through (do not worry, as your broker is supposed to assist you) during the application. Once approved, you will be able to invest in U.S. counters just like you buy sell shares on SGX. You would then be able to access a lot more ETFs including SPDR S&P China BMI Index, as well as other high profile stocks like Berkshire Hathaway!
Great to hear you have invested in STI ETF! Wise choice and you won’t regret!
Note: this is not an invitation to trade.
Thank you Kurt.
You can check with your broker whether you are able to trade in U.S. market. If not, ask if you can open a U.S. shares trading account. There are couple of forms and procedures to go through (do not worry, as your broker is supposed to assist you) during the application. Once approved, you will be able to invest in U.S. counters just like you buy sell shares on SGX. You would then be able to access a lot more ETFs including SPDR S&P China BMI Index, as well as other high profile stocks like Berkshire Hathaway!
Great to hear you have invested in STI ETF! Wise choice and you won’t regret!
Note: this is not an invitation to trade.
Hi Alvin,
I’m still exploring on the area of China, especially the etf which suit rookie like me, buy and hold.
I did thought of going SGX for companines like Epure, midas and swiber. All expect the latter, seems to be going well by securing a few major projects. However, my limited knowledge may be wrong. Understand investing a company takes more than just checking out their b/s and prospectus.
To play safe, ETF is the best way. I have checked, the China etf deals in USD…
And their tag are not cheap.
The one that offer by SGX is Lyxor ETF china enterprise, last price was $9.22
Since you state SPDR S&P China BMI Index, what more advise could you offer?
note: purely act as a learning note.
Hi Alvin,
I’m still exploring on the area of China, especially the etf which suit rookie like me, buy and hold.
I did thought of going SGX for companines like Epure, midas and swiber. All expect the latter, seems to be going well by securing a few major projects. However, my limited knowledge may be wrong. Understand investing a company takes more than just checking out their b/s and prospectus.
To play safe, ETF is the best way. I have checked, the China etf deals in USD…
And their tag are not cheap.
The one that offer by SGX is Lyxor ETF china enterprise, last price was $9.22
Since you state SPDR S&P China BMI Index, what more advise could you offer?
note: purely act as a learning note.
Hi Kurt,
My advice is to screen a China ETF like any other Fund in general. It must satisfy the following:
1) Low cost
2) Broad diversification
3) Passively managed (tracks an index)
4) Not complex (like DBS High Notes)
You are right that being denominated in USD is a drawback. If USD devalues, which is likely if it loses its status of the world’s biggest economy to China, your returns will be affected. Right now I have yet to find any china index fund that is denominated in yuan. As the Chinese economy opens up, we may see more options available.
Hi Kurt,
My advice is to screen a China ETF like any other Fund in general. It must satisfy the following:
1) Low cost
2) Broad diversification
3) Passively managed (tracks an index)
4) Not complex (like DBS High Notes)
You are right that being denominated in USD is a drawback. If USD devalues, which is likely if it loses its status of the world’s biggest economy to China, your returns will be affected. Right now I have yet to find any china index fund that is denominated in yuan. As the Chinese economy opens up, we may see more options available.
Hi Alvin,
Thanks for the reply, i really hope for the latter as well. Keep on writing,
Hi Alvin,
Thanks for the reply, i really hope for the latter as well. Keep on writing,