As the world’s developing economies have emerged as the clear drivers of global GDP growth, interest in BRIC economies has skyrocketed. Few markets have shown as much promise as China, which recently surpassed Japan to become the world’s second-largest economy and seems poised to gain ground rapidly on the U.S. As Western investors have increased the allocations made to emerging markets, China has been one of the most popular destinations, standing out as a symbol of the impressive rise of emerging markets. China‘s economy continues to grow at an impressive clip; the economy expanded by 11.9% in the first quarter of 2010 and 10.3% in the second quarter, and shows no sign of slowing down despite ongoing weakness in major developed markets.
So it’s not surprising that a number of ETF issuers have stepped up to the plate in order to offer a wide variety of funds focusing in on the Chinese equity market. Recent years have seen sector-specific Chinese ETFs from both Global X and EGShares, offering exposure to various corners of the Chinese economy, from infrastructure (CHXX) to consumers (CHIQ). Just last week Van Eck debuted the Market Vectors China ETF (PEK), the first U.S. listed ETF to offer exposure to China’s A-Share market. That fund tracks the CSI 300 Index, a benchmark consisting of 300 A-Share Stocks listed on the Shenzen or Shanghai stock exchanges, and through the use of swaps and other derivative instruments offers American investors a chance to play this previously inaccessible market. “As China’s local A-Share market has historically been restricted to the country’s domestic investors and Qualified Foreign Institutional Investors, many Emerging Market and BRIC funds are not able to include the A-Share market in their country weighting schemes, leading to a fundamental underweighting of China’s true equity market in these funds,” said Van Eck in a press release [see Van Eck Launches China A-Shares ETF].
PEK has proven to be a huge hit with investors; trading volume in each of the first two days topped 500,000 shares. Now Van Eck is moving forward with plans to expand its unique line of China ETFs, recently filing with the SEC for a new suite of funds focusing in on the Chinese stock markets. While there are already 17 other ETFs in the China Equities ETFdb Category, Van Eck’s proposed funds will be the first to track the three major classes of Chinese stock A-Shares- listed in Shanghai or Shenzen for domestic and qualified foreign investors; B-Shares–mainland securities that are eligible for foreign investment; and H-Shares–stocks listed in Hong Kong. This methodology has the ability to open up investor portfolios to a completely untapped side of the Chinese market and could potentially offer a more accurate picture of the investing landscape in China [see FXI: Not The Last Word In China ETF Investing].
The new funds will all follow rules based, modified capitalization weighted, float adjusted indexes designed to track the overall performance of publicly traded companies in their respective sectors. All of the components will also have to be either domiciled and primarily listed on an exchange in China or generate at least 50% of their revenues in China. Only companies with market capitalizations greater than $150 million on a rebalancing date that have a three-month average daily trading volume of at least $1 million and that have traded at least 250,000 shares each month over the last six months are eligible for inclusion in their respective indexes [see The Definitive Guide To China ETFs].
The funds–11 in total–will track all nine major sectors of the economy and also include two funds that segment exposure by market capitalization levels (an all-cap and small-cap ETF). The proposed funds include:
- All China All-Cap ETF
- All China Consumer Discretionary Sector ETF
- All China Consumer Staples ETF
- All China Energy Sector ETF
- All China Financial Services Sector ETF
- All China Healthcare Sector ETF
- All China Industrials Sector ETF
- All China Information Technology Sector ETF
- All China Materials Sector ETF
- All China Utilities Sector ETF
- All China Small Cap ETF
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Disclosure: No positions at time of writing, photo is courtesy of Axel Gaodd.