23 June 2017
Focus on China-Linked ETFs Post-MSCI A-Share Inclusion
  • MSCI announced earlier this week it would include the A shares of 222 China stocks in several of its indexes, including the MSCI China and MSCI Emerging Markets Indexes, after having rejected them for three years running. The process, beginning in May 2018, highlights the strong performance and increasing relevance of China stocks to global investors.
  • There are 10 ETFs on SGX that track MSCI indexes with exposure to China. Of the 10 ETFs, four by Deutsche Bank are delisting in July this year. The remaining six averaged a total return of 15.1% in the year thus far, bringing their average 12-month total return to 29.2%.
  • Among these six, db x-trackers MSCI China Index UCITS ETF (DR) was the best performer, with a total return of 20.1% in the YTD. The MSCI China Index captures large and mid cap stocks primarily traded in China and Hong Kong.

MSCI announced on Wednesday it would include the A shares of 222 China stocks in several of its indexes, including the MSCI China and MSCI Emerging Markets Indexes, after having rejected them for three years running. The inclusion of A shares will be rolled out gradually, beginning in May 2018. These included shares are eligible for the Stock Connect programme, which allows foreigners less restricted access to A shares of stocks traded on mainland China exchanges. By the end of the process, the newly included shares will have a weighting of about 0.73% in the MSCI Emerging Markets Index. Click here for the MSCI release.

 

US investment management firm Morningstar pointed out in a report published Wednesday that while the near-term impact of the change may be small, longer term implications could be tremendous.

 

“This inclusion brings A shares deeper into the global investment arena, and we urge investors to make an effort to understand the fundamentals of investing in China A shares, which are slated to grow in importance in global benchmarks. We believe other index providers will also be likely to review their China A share inclusion plans,” the report noted. Click here for the full report.

 

The two-step inclusion of A shares highlights the strong performance and increasing relevance of China stocks to global investors. There are 10 ETFs on SGX that track MSCI indexes with exposure to China, except for the MSCI World Index. These indexes are: MSCI Emerging Markets Index, MSCI Asia Emerging Markets Index, MSCI AC Asia ex Japan Index, MSCI AC Asia Pacific ex Japan Index, MSCI AC Asia ex Japan High Dividend Yield Index and MSCI China Index. Of the 10 ETFs, four by Deutsche Bank are delisting in July this year. Click here for the announcement by Deutsche Bank.

 

Excluding the four to be delisted, the remaining six ETFs averaged a total return of 15.1% in the year thus far, bringing their average 12-month total return to 29.2%. This compares with the STI Index, which generated a total return of 13.4% in the YTD and 19.7% over the past 12 months.

 

Among the six, db x-trackers MSCI China Index UCITS ETF (DR) was the best performer, with a total return of 20.1% in the YTD. The MSCI China Index captures large and mid cap stocks primarily traded in China and Hong Kong. The major sector weights of the index are Information Technology as well as Financials and Consumer Discretionary stocks, with a total weighting of 70%. The constituents include familiar names like Tencent Holdings and Alibaba Group. Click here for the fund’s fact sheet.

 

The six ETFs are detailed in the table below and sorted by YTD total returns.

 

Name

Stock Code

Total Return MTD %

Total Return YTD %

Total return 12M %

3 Year Total Return Annualized %

db x-trackers MSCI China Index UCITS ETF (DR)

LG9

3.0

20.1

38.2

12.3

db x-trackers MSCI AC Asia Ex Japan Index UCITS ETF

IH1

1.8

17.7

30.7

8.6

Lyxor ETF MSCI AC Asia Ex Japan

G1K

2.0

17.7

32.1

9.1

Lyxor ETF MSCI AC Asia-Pacific Ex Japan

P60

1.4

13.7

26.9

6.7

Lyxor ETF MSCI Emerging Markets

H1N

0.5

13.0

27.5

4.3

db x-trackers MSCI Pacific Ex Japan Index UCITS ETF (DR)

J0Q

0.9

8.1

19.7

4.1

Average

 

1.6

15.1

29.2

7.5

Source: SGX, Bloomberg & SGX StockFacts (data as of 22 June 2017)

 

 

Name

Stock Code

MTD Turnover 2017 S$

YTD Turnover 2017 S$

12M Turnover S$

db x-trackers MSCI China Index UCITS ETF (DR)

LG9

4,958,390

24,365,186

55,504,839

db x-trackers MSCI AC Asia Ex Japan Index UCITS ETF

IH1

1,026,834

20,273,165

223,558,953

Lyxor ETF MSCI AC Asia Ex Japan

G1K

3,240

335,894

988,715

Lyxor ETF MSCI AC Asia-Pacific Ex Japan

P60

655,556

5,780,494

10,037,703

Lyxor ETF MSCI Emerging Markets

H1N

453

207,179

899,984

db x-trackers MSCI Pacific Ex Japan Index UCITS ETF (DR)

J0Q

160,586

3,066,725

5,761,761

Total

 

6,805,059

54,028,643

296,751,956

Source: SGX, Bloomberg & SGX StockFacts (data as of 22 June 2017)

 

To read more about the ETFs please visit the links below:

·         https://etf.deutscheam.com/SGP/ENG/Home

·         http://www.lyxoretf.com.sg/

 

ETFs are investment funds listed and traded intraday on a stock exchange. The majority aim to track the performance of an index and provide access to a wide variety of markets and asset classes, including local stocks, international securities, bonds, commodities or money markets.

 

Each ETF gives investors access to the performance of the asset that comprises the underlying index. Investing in the ETF is also less costly if one was to build a similar portfolio by buying the individual stocks. It also provides exposure to international markets and asset classes that may be inaccessible to individual investors.


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