Our friends at Van Eck launch China A-Shares ETF

Van Eck Global has launched the first US-listed exchange traded fund designed to provide exposure to China’s A-Share market. Access to the market is limited, being restricted to domestic Chinese investors and a limited number of qualified foreign institutional investors (QFII).

“Without A-shares, investors are missing significant exposure to a world economic powerhouse,” said Jan van Eck, principal at Van Eck Global. “The A-shares market accounts for nearly a quarter of all emerging market equities and 72 per cent of China’s equities.”

The A-shares market represents all equities traded on China’s two main stock exchanges in Shanghai and Shenzen.

The new Van Eck Market Vectors China ETF will track the performance of the CSI 300 index, which captures almost two-thirds of the combined market value of the Shanghai and Shenzen exchanges.

The fund has an expenses ratio of 85 basis points.

Van Eck will use swaps to track the CSI 300 index but it has applied for a QFII license in order to allow the ETF to invest directly in A-shares.

Credit Suisse will act as the sole swap provider initially but other investment banks have also expressed an interest in providing swaps.

Asia already has a number of ETFs that track China A-shares. There are eight listed in Hong Kong, two in Tokyo and a further three in Singapore and Taiwan.

However, most US funds that offer exposure to China invest in shares listed in Hong Kong such as the H-shares index. These only account for 13 per cent of China's total equity market.

“These funds offer exposure to only a limited selection of the companies and sectors of the Chinese economy,” said David Semple, director of international equity at Van Eck. “The lack of access to the A-shares market has prevented investors from gaining broad representation of China’s true domestic market.”

Data from BlackRock suggests investors may have lost some of their enthusiasm for the Chinese stock market, as China focused equity ETPs have seen net withdrawals of $1.2bn so far this year.

However, Mr Semple said effective diversification required investors to have a broad exposure to China because of the country’s growing dominance within the global economy.

http://www.ft.com/cms/s/0/c80632ac-d861-11df-a7b4-00144feabdc0.html