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Best China ETFs for Q4 2022

by SuperiorInvest

China exchange traded funds (ETFs) they offer investors a way to geographically diversify their portfolios by owning shares in a basket of companies based in the world’s second largest economy. Despite the large number of state-owned Chinese enterprises, there are still many companies whose shares are publicly traded, including Tencent Holdings Ltd. (700), Ping An Insurance Group Co. of China Ltd. (601318) and China Yangtze Power Co. Ltd. (600900).

Some Chinese stocks were pulled New York Stock Exchange (NYSE) after an executive order signed by then-US President Donald Trump in November 2020 banned US investors from investing in Chinese companies with alleged ties to the Chinese military. In May 2022, US President Joe Biden said his administration was reviewing tariffs on China imposed by Trump with the possibility of repealing them in an effort to lower consumer prices. In late August, Chinese and US regulators announced an agreement to cooperate in reviewing audit documents of US-listed Chinese companies. While Chinese companies remain at risk of being delisted from US exchanges, this is an important step to resolve lingering disputes.

Chinese gross domestic product (GDP) grew by 2.3% in 2020 as the economy began to recover from the disruptions caused by the COVID-19 pandemic by the end of the year. Still, this growth rate was the lowest in decades. China’s GDP rebounded sharply in 2021, growing by 8.1% mainly due to strong industrial production. However, ongoing concerns about COVID-19 and geopolitical issues are hampering the recovery. China’s GDP grew just 0.4% in Q2 2022, with analysts forecasting growth of 3.4% for the full year.

Key things

  • Chinese stocks have significantly underperformed the US stock market over the past year.
  • The Chinese exchange-traded funds (ETFs) with the best annual total returns are CNYA, KBA and ASHR.
  • The highest holding of each of these funds is the Class A shares of Kweichow Moutai Co. Ltd.

There are 17 Chinese ETFs that trade in the United States, excluding inverse and leverage effect ETFs as well as funds with less than $50 million assets under management (AUM). Chinese stocks, as measured by the MSCI China Index, lagged U.S. stocks significantly market over the past 12 months, has posted a total return of -29.9% compared to the S&P 500 total return of -11.0% as of September 1, 2022. The best performing China ETF for the fourth quarter (Q4) of 2022, based on last year’s performance, is the iShares MSCI China A ETF (CNYA).

We examine three of the best China ETFs below. All numbers below are as of September 2, 2022. In order to focus on the Funds’ investment strategy, the best holdings listed for each ETF exclude cash holdings and holdings purchased with the proceeds of securities lending, except in unusual cases such as an exceptionally large portion of cash.

  • Performance in one year: -21.4%
  • Expense ratio: 0.60%
  • Annual dividend yield: 0.98%
  • Three-month average daily volume: 167,363
  • Assets under management: $522.9 million
  • Start date: June 13, 2016
  • Issuer: BlackRock Financial Management

CNYA tracks the MSCI China A Inclusion Index. The fund holds hundreds of stocks with a very diverse basket of names. Financials, consumer staples and industrials are the top three sectors by portfolio representation, accounting for about half of invested assets. This big hat the fund follows a mixed strategy, including both value and growth stocks in their funds. CNYA’s top three holdings are Class A shares from: Kweichow Moutai Co. Ltd. (600519:SHG), a partially state-owned Chinese spirits producer; Current Amperex Technology Co. Ltd. (300750: SHE), a Chinese battery manufacturer and technology company; and China Merchants Bank Co. Ltd. (600036:SHG), commercial Bank.

  • Performance in one year: -21.6%
  • Expense ratio: 0.56%
  • Annual dividend yield: 0.64%
  • Three-month average daily volume: 342,989
  • Assets under management: $611.4 million
  • Start date: March 4, 2014
  • Issuer: CICC

KBA focuses on the MSCI China A 50 Connect index, which consists of 50 large stocks listed in Shanghai and Shenzhen. The fund includes some of the largest and most liquid Chinese stocks that garner the most foreign interest and inflows, including those that stand to benefit over the long term from increased global investment in China’s onshore market. KBA focuses on a mix of value and growth stocks. KBA’s most prominent stocks include the Class A shares of Kweichow Moutai, Contemporary Amperex Technology and LONGi Green Energy Technology Co. Ltd. (601012:SHG), a Chinese manufacturer of photovoltaic solar modules.

  • Performance in one year: -22.5%
  • Expense ratio: 0.65%
  • Annual dividend yield: 0.84%
  • Three-month average daily volume: 6,381,852
  • Assets under management: $1.7 billion
  • Start date: November 6, 2013
  • Publisher: DWS

ASHR seeks to track the CSI 300 Index, an index comprising 300 large- and mid-cap Chinese A-Shares listed on the Shenzhen or Shanghai Stock Exchanges. ASHR is one of the oldest ETFs providing direct exposure to stocks on any of these exchanges, and the large trading volume and AUM reflect this. As the ASHR focuses on the Shenzhen and Shanghai stock exchanges, it does not include stocks listed outside the mainland markets, such as companies listed in Hong Kong. The largest part of the fund’s portfolio consists of financial, industrial and consumer stocks. ASHR’s principal holdings include Class A shares in Kweichow Moutai, Contemporary Amperex Technology and Ping An Insurance (Group) Company of China, Ltd. (601318:SHG), a conglomerate offering insurance, banking, asset management, financial and other services.

The comments, opinions and analysis expressed herein are for informational purposes only and should not be construed as individual investment advice or recommendations to invest in any security or adopt any investment strategy. Although we believe that the information provided here is reliable, we do not guarantee its accuracy or completeness. The opinions and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions and analysis contained in our content are provided as of the date of publication and are subject to change without notice. The material is not intended to be a complete analysis of all material facts relating to any country, region, market, industry, investment or strategy.

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