China Exchange Traded Fund (ETF)
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A China ETF is an exchange traded fund that invests in the equities of companies based in China. China ETFs track the indices of these companies. This is done either through investment in China’s stock exchanges or via foreign listed shares such as the ADRs (American depositary receipts). Investors can increase their exposure to the Chinese market by holding a Chinese exchange traded fund.
China is known for its vast human resource that drives its strongly developing economy, which makes the country anattractive destination for investors. Some sectors where public offerings are made and where the China ETFs can investinclude financial, telecommunications and energy.
How are China ETFs Traded?
Like all exchange traded funds, the Chinese ETFs are also traded throughout the day on exchanges. The net asset value (NAV) of China exchange trade funds is not calculated every day. Chinese ETFs provide the ability to buy on margin, sell short and purchase as little as one share.
FXI was the first ETF that came up in China, which was launched by Barclays. FXI was based on the Xinhua 25 index that was featured in London. It was found to closely track the performance of EWH, which is a Hong Kong exchange trade fund.
PGJ, which is based on the Halter USX China Index, is another example of a China ETF. It was listed by American Express. Unlike FXI, only those companies are traded by PGJ that trade as American Depository Receipts. It is mandatory for all companiesinvolved within PGJ to do a majority of their business within China.
China ETFs: Benefits and Risks
A China ETF is more liquid and flexible than a China-based mutual fund. However, restrictions are placed on trading in Chinese exchange trade funds. This is mainly because the laws in China regulate specific types of foreign investment.
Most of the Chinese companies are controlled by the state. Hence, most of the China ETF offerings are confined to those limitedsectors that have public offerings of stock. This is the primary reason for the skewed growth of exchange traded funds in China.
