China is the second-largest economy in the world in terms of GDP and is expected to overtake the world leader United States in the next decade. However, it is observed that the Chinese equity markets are far lower in value, approximately 11% of the world equity markets, compared to US equity markets which are more than 40% of the total equity markets worldwide. Chinese equities are also underrepresented in most of the indices. However, investors in Singapore who are interested in investing in Chinese equities to benefit from the growth in the Chinese economy can do so using an exchange-traded fund (ETF).
“Most popular Chinese technology companies like Tencent, Meituan, and Xiaomi are listed on the Hong Kong Stock exchange. Usually, most Chinese state-owned companies and banks are listed on the Shanghai stock exchange, while emerging market companies and smaller companies are listed on the Shenzhen stock market.”
Investing in China
Typically investing in Chinese companies is difficult for investors since they have to use different currencies like the Chinese Renminbi. Investing in Chinese companies through the Shanghai and Shenzen stock exchanges and the Hong Kong stock exchange (Hang Seng) through the stock connect option is possible. The Hang Seng China 80 is an index that includes the eighty largest companies from China listed in Hong Kong and mainland China in terms of stock market capitalization. The china leaders’ ETF is an ETF that tracks the Hang-Seng China-80 index so that investors can conveniently invest in the top Chinese companies. This is far more convenient than buying shares of each company they are interested in.
Composition
Most popular Chinese technology companies like Tencent, Meituan, and Xiaomi are listed on the Hong Kong Stock exchange. Usually, most Chinese state-owned companies and banks are listed on the Shanghai stock exchange, while emerging market companies and smaller companies are listed on the Shenzhen stock market. Tencent is the largest company in the index at 7.7%. The other top companies include Kweichow Moutai, a distiller, Meituan, Insurance company Ping, Contemporary Amperex, the largest battery manufacturer in the world, China Construction Bank Corp (CCBC), Wuliangye Yibin company, China Merchants bank company, Longi Green Energy technology.
Benefits of ETF
Usually, Singapore investors will find it inconvenient to purchase shares of the top 80 China companies since they have to pay in Renminbi. The china 80 ETF, launched in 2021, allows them to conveniently invest in the top 80 listed companies in China, paying for the shares in Singapore $. The management fee for the ETF is capped at 0.45%, and the expenses are limited to 0.62% for the first two years, which is less than most other similar ETFs. The initial issue price of each unit was two Singapore dollars; sellers and buyers can purchase a single unit at a time. In addition, the fund manager of the ETF can use his discretion to announce dividends periodically.
Another advantage of investing in the China-80 ETF is that investors can purchase a stake in some of the largest Chinese consumer companies like Moutai and Wuliangye, which are not listed in most consumer indexes. Since share prices will increase or fall based on the company’s performance, the index is reviewed every six months and rebalanced every quarter so that only the most prominent companies are listed in the index
