Editor’s Take: Should We Gain Investment Exposure To China On Our Own

There’s no running away from how big China is. The Chinese economy is the second-largest in the world, accounting for 18.5% of the global GDP. As many of us would have already seen, its decisions and actions also have a direct impact on the global economy.

Given this, it seems logical that China will take a significant allocation in any globally diversified investment portfolio. However, that may not always be the case – and we may need to take a more active approach to ensure we have the exposure to China stocks that we want.

Globally Diversified Portfolios May Not Have As Much Chinese Exposure As We Think

For many investors, we may think that investing in the S&P 500 Index gives us diversified global exposure. Many of the biggest Chinese companies are listed in the U.S., and many of the biggest U.S. companies also have exposure to the Chinese market.

However, investing the S&P 500 will only give us about 5% revenue exposure from the Chinese market. This hardly justifies its 18.5% share of the global GDP. Revenue from the U.S. takes up close to 70% of the index – compared to its 23.9% share of the global GDP.

Source: S&P Global

We may then look to more globally diversified indexes. One that comes to mind is the MSCI All Country World Index (MSCI ACWI). Again, when we invest in the index, we may not be gaining as much exposure to the Chinese market.

In fact, the MSCI ACWI only allocates 1.55% of its portfolio to Asia ex-Japan. This means exposure to stocks from China in the index is even smaller than that – shared with all other Asian countries apart from Japan.

The U.S. takes a smaller, but still significant, share of the MSCI ACWI at over 53%.

Source: MSCI

What this means is that our exposure to China is quite retrained even if we think we may be investing in a globally diversified portfolio. This leads to the next point – we may need to be more purposeful about gaining investment exposure to China.

It Might Also Be A Risk Not To Invest In The China Growth Story

For a start, we should consider whether we even want to make a decision to invest more purposefully in China. The “globally-diversified” indexes have relatively low exposure to China for a reason. One of the big ones is that foreign investors face many restrictions that prevent good access to the Chinese stock markets.

The positive news on this front is that the Singapore Exchange (SGX) and Shenzhen Stock Exchange (SZSE) recently signed an MOU to enable investors in both markets to access a wider range of investments via Exchange Traded Funds (ETFs).

This may also be viewed as a sign that China is gradually warming up to improve access to its capital markets for foreign investors.

Nevertheless, the earlier-mentioned point still stands too – China is the second-largest economy in the world. Who is to say that it isn’t a risk to exclude it from our investment portfolio.

For many investors, the draw is to ride on the continued wave of China’s economic growth. Already, many have the view that China’s economy is poised to top the U.S. economy within the next decade.

Another benefit is that while there is also more risk that may be associated with investing in Chinese companies, they have a relatively low correlation to global markets.

How We Can Invest In China Stocks – And Its Economic Growth Story

We can already invest in H-shares, which are Chinese companies listed in Hong Kong, and Chinese ADRs, which are Chinese companies listed in the U.S.

However, if we want to take the approach of gaining broad-based exposure without picking individual stocks to invest in, investing in ETFs makes sense. In fact, there are more than 14 China-focused stock and bond ETFs that we can invest in on SGX itself.

One that will soon be on this list – and a first-of-its-kind on SGX – is the UOBAM Ping An ChiNext ETF. Investors can buy units in the UOBAM Ping An ChiNext ETF at its Initial Offer Period (IOP) which ends on 7 November at 12 p.m. Alternatively, we can still invest in it after its listing on SGX from 14 November 2022.

Uniquely, the UOBAM Ping An ChiNext ETF allows Singapore investors to buy A-shares – previously restricted for foreign retail investors – that is listed on the ChiNext Market. The ChiNext Market serves as the secondary board of the Shenzhen Stock Exchange (SZSE).

Learn more about this ETF: UOBAM Ping An ChiNext ETF: 8 Things You Need To Know When Investing In This China Focused ETF On SGX

The post Editor’s Take: Should We Gain Investment Exposure To China On Our Own appeared first on DollarsAndSense.sg.