Deutsche Bank looks like it is on the cusp of launching a fund that invests directly in China A-Shares, and not just derivatives representing A-Shares, a new frontier into the second largest economy in the world.
The firm recently filed an update to its db X-trackers Harvest China Fund, which will trade under the symbol “ASHR.” which tracks the CSI 300 Index, comprised of the 300 largest and most liquid stocks in the China A-share market. It also named the price—90 basis points, or $90 for each $10,000 invested. Revealing both ticker and price suggest the launch is nearing.
A-Shares are equity securities issued by companies incorporated in mainland China and are denominated and traded in renminbi. The mainland market of securities that are listed in Shanghai and Shenzhen is considered to be the next great frontier of investing in China.
Controls imposed by the Chinese government currently limits direct investments in A-Shares, so only a limited pool of foreign investors have been approved as Qualified Foreign Institutional Investors by the China Securities Regulatory Commission.
With such restrictions, funds such as the $5.6 billion mega-cap iShares FTSE China 25 Index Fund (FXI B-55) that feature Chinese securities listed in Hong Kong still dominate the Chinese investment market. But that does seem to be changing, particularly given that China’s new leadership appears intent on implementing ambitious changes in the coming generation.
That said, one U.S.-listed ETF does access the A-Shares market, the Market Vectors China ETF (PEK F-31). Like Deutsche Bank’s proposed fund, PEK also tracks the CSI 300 Index. It gains its exposure to A shares through an agreement with Credit Suisse, which has QFII status.
However, PEK accesses A Shares via derivative securities, again a reflection of restrictions China’s securities regulators impose on foreign investors. Thus investors in PEK are exposed to the inherent risks of any equity investment plus so-called counterparty risks associated with use of over-the-counter derivatives.
On the contrary, ASHR’s sub-advisor, Harvest Global Investments Limited, expects to obtain a Renminbi QFII license (RQFII) and to be granted an estimated initial RQFII quota of $700 million, according to the filing.
The fund will have its primary listing on Arca, the New York Stock Exchange’s electronic trading platform.