Since the introduction of its economic reforms in 1978, China has experienced rapid growth and has become the world’s second-largest economy. So much so, economists have been predicting the rise of China as the next superpower in a few decades’ time.
In the book “The Changing World Order” by Ray Dalio, the founder and co-chief investment officer of the world’s largest hedge fund, Bridgewater Associates, described how the United States is on the decline as a superpower, while China is on the rise to becoming the next world leader. Understanding such fundamental shifts will allow an investor to ride major investment trends in the long term.
Read Also: Why Every Singapore Investor Should Consider Investing In The China/ Hong Kong Market
China has long been associated with being the largest manufacturing power in the world. However, as the country progresses, it is also making inroads in the financial, information technology and electric vehicle sectors. Seeing the growing influence of Chinese companies within China and internationally is making global investors salivate about their future prospects.
Chinese stocks can be grouped into three categories: A-stocks, which are companies listed on the mainland and are available for trading to mainland citizens, B-stocks, which are listed on the mainland but quoted in foreign currencies and available for trading to foreign investors; and H-stocks, which are companies listed on the Hong Kong Stock Exchange and open for all investors to trade.
Retail investors may find investing in individual Chinese companies either restrictive or daunting as they may not be able to trade on the particular exchanges or have the time and resources to do in-depth research into the individual companies.
Exchange-Traded Funds (ETFs) offer investors a simple and easy solution to getting exposure to Chinese stocks in various sectors.
Read Also: Complete Guide To ETF investing in Singapore
We scoured the ETF universe from the Singapore Stock Exchange (SGX), Hong Kong Stock Exchange (HKSE), New York Stock Exchange (NYSE) and Nasdaq to pick 9 ETFs that investors can choose from four different sectors to get exposure to the Hong Kong/China market.
ETFs For Broad Exposure To China
Investors seeking overall exposure to the China/Hong Kong market can do so through ETFs that have broad exposure to either mainland listed stocks or Hong Kong listed stocks.
#1 Lion-OCBC Securities China Leaders ETF (SGX:YYY/YYR)
| ETF Details | |
| Ticker Name | Lion-OCBC Securities China Leaders ETF |
| Ticker | YYY (S$ counter) YYR (RMB counter) |
| Exchange Listed | Singapore Exchange |
| Listing Date | 2 August 2021 |
| Number of Holdings | 110 *Based on 17 Sep 2023 |
| Assets Under Management | RMB 403 Million |
| Management Fee | 0.45% per annum |
| Expense Ratio | Capped at 0.62% per annum for the first 2 years from IPO |
| Dividend Yield | – Annual distribution at the discretion of Fund Manager (FM). FM intends to declare distributions for SGD Class units in June each year. |
| Underlying Index | Hang Seng Connect China 80 Index |
The Lion-OCBC Securities China Leaders ETF is available in both Singapore dollars and Chinese Renminbi and aims to replicate the performance of the Hang Seng Connect China 80 Index, which tracks the performance of the 80 largest stock connect-eligible Chinese companies that are listed in Hong Kong, Shenzhen or Shanghai.
The fund’s universe is made up of mainland China industry leaders that are eligible for both southbound and northbound trading in various sectors such as technology, media and telecoms (TMT), healthcare, food and beverages, properties, consumers and industrial sectors.
Investors can also use their Supplementary Retirement Scheme (SRS) savings to invest in this ETF and partake in the investment opportunities from China.
| Top 5 Holdings In The Fund: | |
| Constituents | Weightage (%) |
| Tencent Holdings Limited | 8.40% |
| Kweichow Moutai Company Limited | 6.30% |
| Meituan | 4.50% |
| Contemporary Amperex Technology Company Limited | 4.10% |
| Ping An Insurance Group Co | 2.90 |
Source: LionGlobal Factsheet (June 2023)
#2 iShares MSCI China ETF (Nasdaq:MCHI) And (HK:2801)
| ETF Details | ||
| Ticker Name | iShares MSCI China ETF | iShares Core MSCI China ETF |
| Ticker | MCHI | 2801 |
| Exchange Listed | Nasdaq | Hong Kong Stock Exchange |
| Listing Date | 29 March 2011 | 23 November 2001 |
| Number of Holdings | 647 | 765 |
| Assets Under Management | US$7.24 Billion | HKD 6,130 Million |
| Expense Ratio | 0.58% | 0.20% |
| Dividend Yield | 2.56% | 2.56% |
| Underlying Index | MSCI China Index | |
Both iShares Core MSCI China ETF that is listed in Hong Kong and iShares MSCI China ETF that is listed in the United States provide a broad exposure to large and mid-cap Chinese companies listed in mainland China, as well as outside mainland China.
The ETF offers convenient access to Chinese companies listed on multiple exchanges, including the American Depository Receipts (ADRs) through a single fund.
| Top 5 Holdings In The Fund: | |
| Constituents | Weightage (%) |
| Tencent Holdings Limited | 13.17 |
| Alibaba Group Holding | 8.57 |
| Meituan | 3.94 |
| China Construction Bank Corp Class H | 3.11 |
| Ping An Insurance Group | 2.03 |
Source: iShares Factsheet (June 2023)
ETFs For Technology Exposure To China
Next, we will be looking at the technology sector. Some of the largest companies that are closely monitored by global investors include Alibaba, Tencent and JD.com. It is a sector that is growing fast and has huge potential. However, there are also potential risks from government regulations and trade tensions between the US and China.
Investors can use the following ETFs to diversify their risks and get exposure to Chinese technology-related companies.
#3 Lion-OCBC Securities Hang Seng Index ETF (SGX:HST/HSS)
| ETF Details | |
| Ticker Name | Lion-OCBC Sec HSTECH |
| Ticker | HST (Singapore dollar counter) HSS (US dollar counter) |
| Exchange Listed | Singapore Exchange |
| Listing Date | 10 December 2020 |
| Number of Holdings | 30 |
| Assets Under Management | HKD 1,932.50 Million |
| Management Fee | 0.45% |
| Expense Ratio | Capped at 0.62% per annum for the first 2 years from IPO |
| Dividend Yield | Nil |
| Underlying Index | Hang Seng TECH Index |
The Lion-OCBC Securities Hang Seng TECH Index ETF provides investors with easy access to a basket of the 30 largest technology companies listed in Hong Kong. The fund aims to track the performance of the Hang Seng TECH Index.
The fund offers investors in Singapore access to invest in Chinese tech companies listed on the Hong Kong stock exchange in either Sing dollars or US dollars.
Investors who set aside their savings under the Supplementary Retirement Scheme (SRS) can invest in the top Chinese tech companies through this fund.
| Top 5 Holdings In The Fund: | |
| Constituents | Weightage (%) |
| Li Auto | 9.30 |
| Meituan | 8.20 |
| Alibaba Group Holding | 8.00 |
| JD.COM Inc | 8.00 |
| Kuaishou Technology | 7.80 |
Source: Lion-Global Factsheet (July 2023)
Read Also: 5 Things You Need To Know About The Lion-OCBC Securities Hang Seng TECH ETF Before Investing In It
#4 iShares Hang Seng Tech ETF (HK:3067/9067)
| ETF Details | |
| Ticker Name | iShares Hang Seng TECH ETF |
| Ticker | 3067 (Primary Currency: HKD$) 9067 (Secondary Currency: USD$) |
| Exchange Listed | Hong Kong Stock Exchange |
| Listing Date | 14 September 2020 |
| Number of Holdings | 30 |
| Assets Under Management | HKD 12,177 Million |
| Expense Ratio | 0.25% |
| Board Lot Size | 100 |
| Dividend Yield | Nil |
| Underlying Index | Hang Seng TECH (Net Total Return) Index |
The iShares Hang Seng TECH Index ETF provides investors with easy access to a basket of the 30 largest technology companies listed on the Hong Kong stock exchange. The ETF is traded in both Hong Kong dollars and US dollars.
Due to its composition of only securities listed on the Hong Kong exchange, it does not offer a wide coverage of Chinese technology companies especially those that are only listed in the mainland (A-shares) and in the United States.
However, it does have one of the lowest expense ratios amongst all the other tech-related ETFs.
| Top 5 Holdings In The Fund: | |
| Constituents | Weightage (%) |
| LI AUTO | 9.79 |
| XIAOMI CORP | 8.31 |
| KUAISHOU TECHNOLOGY | 8.09 |
| ALIBABA GROUP HOLDING LTD | 8.08 |
| MEITUAN | 7.79 |
Source: Blackrock Factsheet (August 2023)
#5 Investco China Technology ETF (NYSE:CQQQ)
| ETF Details | |
| Ticker Name | Invesco China Technology ETF |
| Ticker | CQQQ |
| Exchange Listed | New York Stock Exchange |
| Listing Date | 8 December 2009 |
| Number of Holdings | 127 |
| Assets Under Management | US$794.10 Million |
| Expense Ratio | 0.7% |
| Dividend Yield | 0.09 |
| Underlying Index | FTSE China Incl A 25% Technology Capped Index |
The Invesco China Technology ETF seeks to track the investment returns of the FTSE China Including A 25% Technology Capped Index by investing in information technology-related companies.
The tech crackdown in 2021 caused the ETF to lose around 46% from its highs of $108 to its current price of $57.40. Furthermore, the ETF for the first time did not declare any annual dividends last year, despite consistently distributing from 2011 to 2020.
| Top 5 Holdings In The Fund: | |
| Constituents | Weightage (%) |
| Tencent Holdings Ltd | 10.16 |
| Meituan ‘Class B’ | 8.92 |
| Baidu ADRPinduoduo (PDD) Holdings | 8.24 |
| Pinduoduo (PDD) Holdings | 6.55 |
| Kuaishou Technology | 5.67 |
Source: Invesco Factsheet (June 2023)
#6 KraneShares CSI China Internet ETF (NYSE:KWEB)
| ETF Details | |
| Ticker Name | KraneShares CSI China Internet ETF |
| Ticker | KWEB |
| Exchange Listed | New York Stock Exchange |
| Listing Date | 31 July 2013 |
| Number of Holdings | 32 |
| Assets Under Management | US$ 5.68 Billion |
| Expense Ratio | 0.69% |
| Dividend Yield | Nil |
| Underlying Index | CSI Overseas China Internet Index |
KraneShares CSI China Internet ETF is a pure play on Chinese companies whose primary businesses are focused on the internet and internet-related technology.
Its performance was severely affected by the tech crackdown measures, causing it to drop over 65% from reaching a high of $104.9 on February 17, 2021 to a low (October 24, 2022) price of around $17.22. Correspondingly, it also has the biggest upside potential once institutional capital flows back into Chinese tech companies. The ETF did not distribute any dividends last year, unlike its previous years.
| Top 5 Holdings In The Fund: | |
| Constituents | Weightage (%) |
| Alibaba | 9.26 |
| Pinduoduo (PDD) Holdings | 9.25 |
| Tencent Holdings Ltd | 8.97 |
| Meituan ‘Class B’ | 7.85 |
| Baidu ADR | 6.10 |
Source: KraneShares Factsheet (August 2023)
ETF For Exposure To China’s Electric Vehicle Market
Demand for electric vehicles is gaining momentum as the world shifts away from deriving energy from fossil fuels. This is especially so as countries are tailoring their policies to meet the United Nations goal of net zero carbon emissions by 2050.
China itself has also embarked on phasing out conventional gas-burning cars by 2035 and has made huge investments in its infrastructure to support electric vehicles in many of its major cities.
Therefore, this is another upcoming sector that investors can get exposure to through ETFs.
#7 NikkoAM-StraitsTrading MSCI China Electric Vehicles and Future Mobility ETF (SGX:EVS/EVD)
| ETF Details | |
| Stock Name | NikkoAM-STC CN EV |
| Stock Code | EVS (Primary Currency: S$) EVD (Secondary Currency: USD$) |
| Exchange Listed | Singapore Stock Exchange |
| Listing Date | 20 January 2022 |
| Number of Holdings | 50 |
| Assets Under Management | $29.64 Million |
| Expense Ratio | 0.70% |
| Dividend Yield | Nil |
| Underlying Index | MSCI China All Share IMI Future Mobility Top 50 Index |
The recently launched NikkoAM-StraitsTrading MSCI China Electric Vehicles and Future Mobility ETF seeks to give investors exposure to one of the fastest growing industries in China. It is the first China Electric Vehicle ETF to be listed on the Singapore Exchange and is available in two currencies – SGD and USD.
The fund aims to track the returns of the MSCI China All Shares IMI Future Mobility Top 50 Index by investing in the 50 largest Chinese companies listed in the US, Hong Kong, Shanghai and Shenzhen that derives significant revenue from the energy storage technologies (including electric vehicles), autonomous vehicles, shared mobility and new transportation methods.
| Top 5 Holdings In The Fund: | |
| Constituents | Weightage (%) |
| Nio A ADR | 13.00 |
| Contemporary Amperex Technology | 9.10 |
| Li Auto (Class A) | 8.30 |
| BYD Co (Class H) | 6.20 |
| Geely Automobile Holdings | 5.40 |
Source: NikkoAM (as of 15 September 2023)
Read Also: 5 Things To Know About NikkoAM-StraitsTrading MSCI China EVFM ETF Before Investing In It
ETF For Fixed Income Exposure To China
Chinese bonds are another asset class that investors can get exposure to China through.
An article by Goldman Sachs stated that Chinese government bonds offered attractive yields and low volatility compared to other major bond markets, making them a “powerful” diversification tool.
Investors looking for stable returns can invest in the following ETFs to get exposure to Chinese government bonds.
#8 ICBC CSOP FTSE Chinese Government Bond Index ETF (SGX:CYC/CYB)
| ETF Details | |
| Ticker Name |
ICBC CSOP CGB ETF |
| Ticker | CYC (Primary Currency: S$) CYB (Secondary Currency: USD$) |
| Exchange Listed | Singapore Exchange |
| Listing Date | 21 September 2020 |
| Number of Holdings | 72 |
| Assets Under Management | RMB 4,140 Million |
| Expense Ratio | 0.25% |
| Yield to Maturity | 2.45% |
| Underlying Index | FTSE Chinese Government Bond Index |
Investors seeking diversification from equities can tap into the second-largest (China) bond market by investing in the ICBC CSOP FTSE Chinese Government Bond Index ETF.
The ETF generates a stable yield made up of relatively high quality (rated A1/A+ by Moody’s/S&P) onshore China government bonds that also have a low correlation with other major government bond indexes. The payout to investors will be made only in US dollars in June and December of each month.
#9 NikkoAM-ICBCSG China Bond ETF (SGX:ZHY/ZHD)
| ETF Details | |
| Ticker Name |
NikkoAM-ICBCSG China Bond ETF |
| Ticker | ZHY (Primary Currency: S$) ZHD (Secondary Currency: USD$) |
| Exchange Listed | Singapore Exchange |
| Listing Date | 24 November 2020 |
| Number of Holdings | 121 |
| Assets Under Management | RMB 1,535.66 Million |
| Expense Ratio | 0.30% |
| Yield to Maturity | 2.57% |
| Underlying Index | ChinaBond ICBC 1 – 10 Year Treasury and Policy Bank Bond Index |
Another bond ETF that investors can choose is available on the Singapore Stock Exchange, is the NikkoAM-ICBCSG China Bond ETF.
The bond ETF tracks the ChinaBond ICBC 1 – 10 Year Treasury and Policy Bond Index, which comprises of China government bonds and bonds issued by the 3 Chinese policy banks (Agricultural Development Bank of China, China Development Bank, and Export-Import Bank of China). These three policy banks are state-owned entities and are viewed as quasi-government entities. Therefore, they share the same international credit rating as the Chinese government.
This is another way investors can diversify their exposure to China without the high volatility that comes with the previously mentioned equity ETFs.
Read Also: 5 Things You Need To Know About The NikkoAM-ICBCSG China Bond ETF Before Investing In It
What Other Considerations To Take Note-Off When Investing In ETFs
Aside from understanding the different make-up of the portfolio and the thematic strategy employed by the fund managers, investors also need to take into consideration the pros and cons of investing in ETFs listed outside of Singapore.
These include factors such as the withholding taxes on the dividends issued by the ETFs and estate duty.
For example, non-resident investors are charged a 30% withholding tax on the dividends issued by US ETFs. Whereas, investors do not have to pay any withholding taxes, if the ETF is based in Hong Kong or Singapore.
Likewise, for non-US residents, if their assets are more than US$60,000, they will be subjected to an estate duty of around 18 – 40%. Whereas, there is no estate duty on ETFs that are incorporated in either Hong Kong or Singapore.
Read Also: Pros & Cons Of Buying An SGX-Listed ETF When Investing For Overseas Exposure
This article was first published on 10 March 2022 and was updated with latest information.
The post 9 ETFs You Can Invest For Exposure To The China/Hong Kong Market appeared first on DollarsAndSense.sg.
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