A-Shares ETF Launch a Sign of Increased EM Access

ETF Trends

One long-standing hurdle in the way of emerging markets investors is getting a little easier to clear. That being broader, more comprehensive exposure to select markets beyond large-caps and state-run firms usually trading in New York or London.

The successful debut of the db X-trackers Harvest CSI 300 China A-Shares Fund (ASHR) is one sign of the increased, albeit on an incremental basis, foreign investors are starting to get to developing economies.

“ASHR opens new possibilities in terms of types of companies available to overseas investors. While some of the largest Chinese companies are listed in Hong Kong or New York, there are important Chinese companies that can only be accessed through the A-shares market,” reports Rosalyn Retkwa for Institutional Investor.

Currently, China limits foreign investors’ access to A-shares, which trade in Shanghai and Shenzhen, to Qualified Foreign Institutional Investors and Renminbi Qualified Foreign Institutional Investors. However, the world’s second-largest economy is looking to increase foreign investment after seeing its mainland equity markets stumble over the past several years. [A-Shares ETF Could Capture Investors' Attention]

Deutsche’s partnership with Harvest Fund Management, China’s second-largest asset manager, is a key element in the bank being able to offer an A-shares ETF that holds actual equities. Harvest is a Renminbi Qualified Foreign Institutional Investor (RQFII), which means it meets Chinese regulatory requirements to be a foreign owner of A-shares. [China A-Shares ETF Officially Debuts]

ASHR is not even two months old and already has $216.2 million in assets under management, easily making it one of 2013’s most successful new ETFs. Competing products such as the Market Vectors China ETF (PEK) and the PowerShares China A-Share Portfolio (CHNA) are also in the process of obtaining RQFII status to transition away from portfolios of derivatives to holding stocks as ASHR does.

China is not the only emerging market taking to steps to bolster foreign investment. Vietnam, a frontier market, has been mulling proposals to increase foreign ownerships across various sectors, including financial services.

Russia, a BRIC member along with China, in July 2014 will make local shares available through Euroclear, according to Institutional Investor. That could increase the allure of local Russian shares over global depositary receipts listed in London. Additionally, Russian policymakers have been attempting to force state-run companies to increase the percentage of profits paid out in dividends in a bid to lure more foreign investors.

db X-trackers Harvest CSI 300 China A-Shares Fund

View photo



ETF Trends editorial team contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

View Comments (0)