S&P 500 ETF is the default ETF to get an exposure to US equities. But what about China?
Many investors are not familiar with the Chinese markets and her indices, and what ETFs are available for their choosing.
Fret not, let me quickly orientate you and at least point you to the right direction in choosing a China ETF, should you be interested.
Latest Update Done: 3 Jan 2024
China stocks are listed in different exchanges
First, you have to know that China stocks are often listed in different exchanges all around the world. This is unlike the American companies which are usually listed in the U.S.
- China A shares refer to those China stocks listed in Shanghai Stock Exchange or Shenzhen Stock Exchange.
- China H shares refer to the China companies listed in the Stock Exchange of Hong Kong. More often than not, these H shares have their A share counterparts listed in the Mainland too.
- Then there’re Chinese ADRs – listed in New York Stock Exchange or NASDAQ.
Although there are China stocks listed in other countries (like S-Chips in Singapore), the above 3 types of China shares are the most important as they represent the most successful enterprises from China.
To learn more about the different types of shares and how you can invest in China safely and profitably, refer to our Complete Guide to Investing in China.
Best China ETF – Index Fund
You might be bullish on the China markets but don’t want to stomach the risk of picking individual Chinese stocks. Hence, the next best solution is to invest in a China Index Fund.
When it comes to investing in China index funds, you have to select an index very carefully, because some may include only stocks listed in one country while ignoring Chinese stocks listed in other countries.
For example, the CSI 300 index only consider A shares and exclude giants like Alibaba and Tencent because both are not listed in Mainland China.
At the point of writing, there’s only one ETF that have a good overall exposure to Chinese companies that include A, H shares and US ADRs:
iShares MSCI China ETF
It is listed on 2 different exchanges, I list the differences here:
iShares MSCI China ETF (NASDAQ:MCHI) vs iShares Core MSCI China ETF (HKSE:2801)
| As of 3 Jan 2024 | iShares MSCI China ETF | iShares Core MSCI China ETF |
| Exchange | NASDAQ | SEHK |
| Tickers | MCHI | 2801 / 9801 |
| Tracks | MSCI China Index | MSCI China Index |
| Denomination | USD | HKD / USD |
| Expense Ratio | 0.59% | 0.2% |
| Fund Size | USD 5.76 billion | HKD 5.59 billion |
| No. of holdings | 661 | 768 |
| Top 10 holdings | ~40.8% of the portfolio 1. Tencent 2. Alibaba 3. Pinduoduo (ADR) 4. China Construction Bank 5. Meituan 6. Netease 7. JD.com 8. Baidu 9. ICBC 10. Xiaomi |
~40.5% of the portfolio 1. Tencent 2. Alibaba 3. Pinduoduo (ADR) 4. China Construction Bank 5. Meituan 6. Netease 7. JD.com 8. Baidu 9. ICBC 10. Xiaomi |
If you just want to invest in one China ETF, iShares Core MSCI China ETF (HKS:2801) would be a good choice.
At the point of writing, the HKSE listed MSCI China ETF by iShares is cheaper with an expense ratio of 0.2% compared to the 0.58% of its NASDAQ listed MSCI China ETF counterpart.
Best China ETFs for A Shares
China A Shares refer to China stocks listed in Shanghai Stock Exchange or Shenzhen Stock Exchange. You should note that international investors do not have direct access to them.
Another interesting fact about A Shares is that giants like Tencent and Alibaba are not listed in these exchanges. This means China A shares ETFs could be a good complement to the overall China markets ETF, giving you access to companies that may be difficult to invest in directly as a foreign retail investor.
The best ETFs that track China A-shares are:
iShares Core CSI 300 ETF (SEHK:2846)
The iShares Core CSI 300 ETF gives you exposure to the CSI 300 index which tracks the most liquid large and mid-cap stocks listed on Shanghai Stock Exchange and Shenzhen Stock Exchange.
It is listed on the Hong Kong Stock exchange in HKD (2846), USD (9846) and RMB (82846). Hence, if you wish to invest in this, you’ll need to have access to the Hong Kong markets via your broker.
iShares MSCI China A ETF (BATS: CNYA)
The iShares MSCI China A ETF gives you exposure to the MSCI China A Index which was designed for foreign investors who want a broader exposure to the China markets. It is listed on Cboe BZX (formerly BATS) exchange, in the U.S.
Although both ETFs give you exposure to A Shares, they track different indices built with different objectives. At this point you might be wondering what’s the differences, so here’s a comparison:
iShares Core CSI 300 ETF vs iShares MSCI China A ETF
| As of 3 Jan 2024 | iShares Core CSI 300 ETF | iShares MSCI China A ETF |
| Exchange | SEHK | BZX (U.S.) |
| Tickers | 2846 (HKD counter) 82846 (RMB counter) 9846 (USD counter) |
CNYA |
| Denominations | HKD/RMB/USD | USD |
| Tracks | CSI 300 index | MSCI China A Index |
| Expense ratio | 0.16% | 0.60% |
| Fund size | RMB 1.64 billion | USD 0.19 billion |
| No. of holdings | 301 | 500 |
| Top 10 holdings | ~20.8% of the portfolio 1. Kweichou Moutai 2. Ping An Insurance 3. CATL 4. China Merchants Bank 5. Wuliangye 6. Midea 7. Industrial Bank 8. Yangtze Power 9. Ziyin Mining 10. Hengrui Pharmaceuticals |
~17.2% of the portfolio 1. Kweichou Moutai 2. CATL 3. Yangtze Power 4. China Merchants Bank 5. Wuliangye 6. Ping An Insurance 7. BYD 8. Mindray 9. Industrial Bank 10. Agricultural Bank of China |
Best China Tech ETFs
Tech stocks are all the rage lately and China has her own fair share of exciting tech companies.
iShares Hang Seng Tech ETF (SEHK:3067)
There was good interest when the Hang Seng Tech Index was launched in 2020. The main downside of the Hang Seng Tech Index is that it only selects tech stocks listed in Hong Kong (H-Shares) and none of the US ADRs or A-Shares.
If you are comfortable only with tech stocks listed in Hong Kong, consider the iShares Hang Seng Tech ETF.
It is provided by Blackrock and is available in HKD (3067) and USD (9067) on the Hong Kong Stock Exchange.
CSOP SZSE ChiNext ETF (SEHK:3147)
If you’re looking for younger tech stocks that could potentially grow faster, the Hang Seng Tech ETF may not be sufficient for you.
That said, many of the young and fast Chinese tech stocks are listed either on ChiNext (part of Shenzhen Stock Exchange) or Star Market (part of Shanghai Stock Exchange). The bad news is that foreign investors are not able to invest directly into stocks listed on these two boards.
However, you can gain exposure by buying ETFs like CSOP SZSE ChiNext ETF that invest in stocks listed on ChiNext.
To get more exposure to young tech companies, you may also want to consider:
KraneShares SSE Star Market 50 Index ETF (NYSE:KSTR)
The KraneShares SSE Star Market 50 Index ETF is the very first ETF that’ll track Star Market stocks and it is listed in the U.S.
For a better understanding of their differences, here’s a comparison table:
| As of 3 Jan 2024 | iShares Hang Seng TECH ETF | CSOP SZSE ChiNext ETF | KraneShares SSE Star Market 50 Index ETF |
| Exchange | SEHK | SEHK | NYSE |
| Tickers | 3067 (HKD counter) 9067 (USD counter) |
3147 (HKD counter) 83147 (RMB counter) |
KSTR |
| Denominations | HKD / USD | HKD / RMB | USD |
| Tracks | Hang Seng Tech Index | ChiNext Index | Shanghai Stock Exchange (SSE) Science and Technology Innovation Board 50 Index |
| Investment exposure (aka “why invest?”) | China tech stocks listed in Hong Kong | Young and fast-growing Chinese tech stocks on ChiNext, not directly available to foreign investors. | Young and fast-growing Chinese tech stocks on StarMarket, not directly available to foreign investors. |
| Expense ratio | 0.25% | 0.99% | 0.89% |
| Fund size | HKD 9.6 billion | RMB 0.23 billion | USD 0.30 billion |
| No. of holdings | 30 | 100 | 52 |
| Top 10 holdings | ~70.4% of the portfolio 1. JD.com 2. Alibaba 3. Xiaomi 4. Kuaishou 5. Li Auto 6. Tencent 7. Meituan 8. Netease 9. Lenovo 10. Semiconductor Manufacturing International |
~48.8% of the portfolio 1. CATL 2. East Money 3. Mindray 4. Inovance Tech 5. Wens Foodstuffs 6. Sungrow Power Supply 7. Zhifei Biologica 8. Aier Eye Hospital 9. Innolight 10. Eve Energy |
~47.8% of the portfolio 1. Kingsoft Office Software 2. Hygon Information Technology 3. United Imagin Healthcare 4. Montage Technology 5. Advanced Micro-Fabrication 6. Chinese Yuan (RMB) 7. Transsion Holdings 8. Trina Solar 9. National Silicon Industry Group 10. Cambricon Technologies |
We can also invest beyond the constraints of conventional index ETFs – we can bet on emerging themes that have a lot of growth potential. You can think of themes as new sectors. Instead of finance and energy sectors, think of fintech and clean energy themes.
If you are more comfortable investing in China Tech ETFs listed on the SGX, consider these.
Best China Thematic ETFs
Thematic ETFs have proliferated over the years and now there are themes pertaining to China.
Global X China Electric Vehicle and Battery ETF (SEHK: 2845)
I think one of the more rewarding themes would be related to clean energy and electric vehicles (EVs).
For example, China has the most number of electric vehicles and the largest charging network in the world. China is going to be an important starting point for adoption of electric vehicles for the other countries. I did a video comparing China’s EV companies here:
An ETF that’ll give you exposure to China’s growing EV market is the Global X China Electric Vehicle and Battery ETF. It follows the Solactive China Electric Vehicle and Battery Index which tracks Chinese companies that are active in the field of Electric Vehicles and Batteries.
Global X China Clean Energy ETF (SEHK: 2809)
If the EV theme is too narrow, a good way to broaden your exposure is to consider the Clean Energy theme. The Global X China Clean Energy ETF tracks the Solactive China Clean Energy Index that tracks companies headquartered in China and Hong Kong, with significant exposure to Affordable and Clean Energy.
Here’s a quick comparison of these two ETFs:
| As of 3 Jan 2024 | Global X China Electric Vehicle and Battery ETF | Global X China Clean Energy ETF |
| Exchange | SEHK | SEHK |
| Tickers | 2845 (HKD counter) 9845 (USD counter) |
2809 (HKD counter) 9809 (USD counter) |
| Denominations | HKD / USD | HKD / RMB |
| Tracks | Solactive China Electric Vehicle and Battery Index | Solactive China Clean Energy Index |
| Expense ratio | 0.68% | 0.68% |
| Fund size | HKD 1.6 billion | HKD 0.68 billion |
| No. of holdings | 61 | 52 |
| Top 10 holdings | ~51.2% of the portfolio 1. BYD 2. CATL 3. Inovance Technology 4. Fuyao Glass 5. Sanhua Intelligent Controls 6. Ganfeng Lithium 7. Eve Energy 8. Tinci Materials 9. Tianqi Lithium 10. Yunnan Energy New Material |
~59.7% of the portfolio 1. Yangtze Power 2. Longi Green Energy 3. Nari Technology 4. Sungrow Power Supply 5. Jinko Solar 6. Naura Technology 7. Three Gorges Renewables 8. Three Gorges Renewables 9. JA Solar Technologies 10. Jingsheng Mechanical & Electrical |
KraneShares CICC China 5G & Semiconductor ETF (NYSE:KFVG)
Since the pandemic, people started to move online in troves, pushing up the demand for semiconductor chips. The industry is struggling to keep up with the demands. China has a significant role in this industry, but it can be difficult for retail investors to pick the winners.
Hence, a semiconductor ETF like the KraneShares 5G & Semiconductor Index ETF could be a good option if you are bullish on this theme.
| As of 3 Jan 2024 | KraneShares CICC China 5G & Semiconductor ETF |
| Exchange | NYSE |
| Tickers | KFVG |
| Denominations | USD |
| Tracks | CICC China 5G and Semiconductor Leaders Index |
| Expense ratio | 0.79% |
| Fund size | USD 0.11 billion |
| No. of holdings | 50 |
| Top 10 holdings | ~45.9% of the portfolio 1. Foxconn Industrial Internet Co 2. Luxshare Precision 3. Xiaomi 4. Hygon Information Technology 5. Kingsoft Office Software 6.BOE Technology 7. Will Semiconductor Co 8. Naura Technology 9. ZTE Corp 10. IFLYTEK |
China Consumer ETF (SEHK:2806)
Another rewarding theme would be the rise of affluence in China.
The middle class in China are financially capable of consuming more goods and services as compared to decades ago. China has a vast middle class that can spend and that is good news for consumer brands.
2806 gives you exposure to brands that serve the Chinese Consumer market, you should have heard of some of the stocks in its holdings:
| As of 3 Jan 2024 | Global X China Consumer Brand ETF |
| Exchange | SEHK |
| Tickers | 2806 (HKD counter) 9806 (USD counter) |
| Denominations | HKD / USD |
| Tracks | Solactive China Consumer Brand Index |
| Expense ratio | 0.68% |
| Fund size | HKD 0.43 billion |
| No. of holdings | 47 |
| Top 10 holdings | ~66.6% of the portfolio 1. Kweichow Moutai 2. Midea 3. Li Auto (ADR) 4. Wuliangye 5. Techtronic Industries 6. Luzhou Laojiao 7. Anta Sports Products 8. Nongfu Spring 9. H World Group (ADR) 10. Mengniu Dairy |
There are many other themes such as healthcare, artificial intelligence & robotics and biotech. You can bet on any theme you believe in the most.
P.S. Prefer to watch a video? Here’s a video explanation of the best China ETFs:
How to invest in China ETFs
- Step 1: Select a China market index
- Step 2: Find an ETF that tracks your desired index
- Step 3: Find out where the ETF is listed
- Step 4: Check if your ETF broker offers you access to it (and whether you’re comfortable investing in it)
- Step 5: Buy the ETF via your broker, remember to account for the cost!
The ETFs that I have mentioned here are listed in US and Hong Kong stock exchanges. As long as you have a stockbroker that provide access to these markets, you would be able to buy and sell these ETFs like how you would with stocks.
You can use any broker you prefer. But if you need some recommendation, I would suggest Interactive Brokers as it is one of the cheapest brokerages and offers its services in many countries. But it makes sense for those with larger capital (US$100k and above) or trades actively. Otherwise, you can consider using Tiger Brokers for smaller accounts.
For the HK listed ETFs, you’ll have to take note of the lot size. You can only buy and sell in multiples of the lot size. For example, Vanguard Total China Index ETF has a lot size of 100 units. It would cost you minimally HKD 1,400 if the share price is HKD 14. This is unlike the US listed ETFs whereby you can buy and sell just 1 unit.
ETFs made China investing easy
ETFs have become cheap and easy ways to invest in the markets. They are cheaper than unit trusts and you just need to bet on a general trend rather than having to spend effort and time to get the stock picks right.
I have shared with you 3 types of ETFs you can consider if you wish to bet on China.
The best overall China ETFs should be broad-based and get you access to Chinese stocks listed around the world. The top choice would be iShares Core MSCI China ETF (HKSE:2801).
The best China tech ETFs are
- iShares Hang Seng TECH ETF
- CSOP SZSE ChiNext ETF
- KraneShares SSE Star Market 50 Index ETF
Lastly, there are opportunities in thematic plays too:
- Global X China Electric Vehicle ETF
- Global X China Clean Energy ETF
- Global X China Consumer Brand ETF
Good luck!
If ETF isn’t your thing and you prefer to pick individual China growth stocks that could outperform these ETFs, join me at my next webinar to learn a China growth stocks investing strategy that works.
FAQs
Does Vanguard have a China ETF?
Vanguard managed the Vanguard Total China Index ETF which was listed on the SEHK previously.
Vanguard announced its exit from its China operations in Apr 2021 and the Vanguard Total China Index ETF has been withdrawn since. (Source) The ETF has been delisted and investors were paid in back in a round of cash distribution in Jun 2021.
What is the largest China ETF?
At the point of writing, the iShares MSCI China ETF (MCHI) is the largest China ETF with an AUM of USD 5.76 billion.
Read more about the MCHI and its cheaper alternative above.
What is the best way to invest in China?
A broad China ETF may be the best way for investors who want exposure to China’s growth, without having to deal with the risk, volatility and effort required to pick individual stocks.