The race is on to give U.S. exchange-traded fund investors access to $9 trillion of stocks and bonds in mainland China.
Money managers including BlackRock Inc. and CSOP Asset Management Ltd. have now registered almost 40 ETFs tracking the country’s domestic shares and debt with U.S. regulators, six times the number of existing funds. The products allow anyone with a U.S. brokerage account to gain exposure to Chinese securities that were previously off limits to all but a few qualified institutions.
Equities in the biggest emerging market are heading for the best annual gain since 2009, outpacing shares of mainland companies listed overseas amid speculation government plans to ease capital controls will narrow the valuation discount on domestic securities. As programs including a planned bourse link between Hong Kong and Shanghai help open up China’s markets, fund providers are rushing to stake claims to the fees they hope will come from new investors.
“There is so much potential, you just can’t ignore China,” Patricia Oey, a senior analyst at investment data provider Morningstar Inc. in Chicago, said in a telephone interview. Fund companies “want to have a foot into a very big market. China is opening up and they want to be there.”
BlackRock, CSOP
BlackRock, the world’s largest money manager, is seeking to introduce its first U.S. exchange-traded fund that would invest directly in equities traded in Shanghai and Shenzhen, according to a Sept. 15 regulatory filing. CSOP, which runs a $6 billion ETF of China’s yuan-denominated A shares out of Hong Kong, filed to create a U.S. version three days later.
Melissa Garville, a spokeswoman for BlackRock in New York, declined to comment on the ETF filing, as did a CSOP official who asked not to be named because of company policy.
While only a fraction of Chinese companies are listed or sell debt offshore, U.S. investors have piled almost $10 billion into ETFs that exclusively buy securities trading abroad, until recently one of the only ways for individuals to gain exposure to businesses from the world’s second-largest economy.
The Shanghai Composite Index has rallied 17 percent this year, compared with a 0.8 percent advance for a gauge of mainland shares listed in Hong Kong and a 4.1 percent gain for the most-actively traded Chinese stocks in the U.S.
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The success of the $457 million Deutsche X-trackers Harvest CSI 300 China A-Shares ETF, which has lured more money than any other China-focused ETF since it was launched a year ago, reflects growing investor demand for Chinese companies linked to the nation’s expanding consumer market.
The CSI 300 has a weighting of about 18 percent in consumer-related companies, versus 5 percent for the Hang Seng China Enterprises index of Hong Kong-listed shares. Household consumption in China climbed to 47 percent of gross domestic product last year from 43 percent in 2008, Morgan Stanley analysts wrote in a Nov. 6 report.