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ETF Specialist

China Opens Its Onshore Equity Markets to Foreigners

China enthusiasts can now gain access to China's A-share market via ETFs.

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Morningstar Take
Five exchange-traded funds that provide direct access to China's onshore equity market (China A-shares) have launched over the past year. These launches are notable in that they provide access to an asset class that in the past had been inaccessible to foreign investors. While there is a degree of novelty to these products, China A-shares are an extremely niche asset class and more suitable for those who are very familiar with risks and opportunities of investing in the emerging markets, and especially in China. DB X-trackers Harvest CSI 300 China A-Shares (ASHR) (report below) is currently the largest A-share ETF with about $200 million in assets. The other A-share ETFs are significantly smaller and have seen very low asset inflows.

Suitability
DB X-trackers Harvest CSI 300 China A-Shares provides cap-weighted exposure to the onshore (A-shares) Chinese equity market, where foreign investors have historically had very limited access. This is because China has a "mostly closed" capital account, whereby investors, as well as companies and banks, cannot move money in and out of the country except in accordance with strict rules. Capital account liberalization is part of China's current reform efforts, and the fact that this ETF exists (along with a handful of others that were also launched over the past year) is evidence that China is slowly and carefully trying to open up its capital markets.

Patricia Oey does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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