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IS IT WORTH INVESTING IN CHINA?

Can investing on China be a bargain for the foreseeable future?

Many investors and non-investors have been asking this question for some time: will the Chinese economy after the coronavirus grow more and sooner than Western economies but especially than the United States?

It must be said that China, the first epicenter of the coronavirus pandemic, was the first country to relax containment measures. As a result, Chinese stocks have recovered better than other stock markets, making it more attractive to invest in China.

Is this enough to think that it will be the economy that will recover first over all others?

As we all know, the factors that make a country’s economy grow are mainly related to fiscal and development policies, international economic agreements, and global geopolitical events that have little to do with the health issue. It is also true that China has a domestic demand of potentially 1.3 billion people . This aspect could be a driver for a revival of domestic consumption.
This is not to say, however, that China cannot be adversely affected by the continuing war on tariffs (read here) because it is also a strong exporting nation for its products.

So is it worthwhile to invest in China?

The answer is not so simple to give. There are too many elements at play, and it is also true that if external demand (rest of the world) drops, Chinese production would also suffer.

Leaving aside macroeconomic and geopolitical discourses, however, for those who still want to invest in China for the next few years because they believe the Asian giant has high growth potential, they have possible alternatives.

Italian investors now have access to numerous equity investments related to mainland China, starting with investment funds that specialize in this market.

If one is not anxious about volatility and has confidence in the continuation of China’s financial reforms, investments in funds with Chinese equities can be considered with a view to portfolio diversification.

In fact, never “bet” on a single nation or sector, and it is always best to diversify your investments. Putting a certain percentage of Chinese and emerging market stocks in the portfolio is one way to diversify investments in the medium and long term.

China’s economy no longer has the double-digit growth rates of the past decade, but as the world’s second-largest economy, it cannot fail to be in the portfolios of many investors.

The easiest way to invest in Chinese equities is through investment funds specialized by geographic area or otherwise focused on the Chinese area. Some of these funds have performed well in the past, and being funds with shares in many companies within them have less risk than buying a single stock.

What about the direct purchase of shares instead?

In the past, so-called “A” shares traded on the Shenzhen and Shanghai stock exchanges could only be purchased by resident Chinese citizens.
Foreigners were allowed to buy “H” shares and “red chips,” which are private, or partly state-owned, companies incorporated on the Chinese mainland but listed on the Hong Kong Stock Exchange.

Because of capital controls and legal restrictions, until recently foreign investors could access Chinese stocks almost exclusively through the Hong Kong Stock Exchange.

However, Chinese government initiatives in recent years have opened up foreign investors’ access to mainland Chinese stocks.

Investing in ETFs?

Before investing in “A” stock ETFs, many analysts recommend considering the fact that, in general, “A” stocks are much more volatile than non-domestic Chinese stocks.

Then again, it is well known that the Chinese market is dominated by retail investors.

Few of them care about the fundamentals of the companies. Indeed, the average Chinese investor makes decisions based mainly on word of mouth and rumors, which brings volatility out of proportion.
Therefore we can see great performances as sudden declines.

To mitigate volatility risk, one can always consider doing a PAC (Capital Accumulation Plan) on both funds and ETFs.

What etf can I find on the Chinese stock market?

At justetf.com you can find as many as 14 ETFs with percentage volatility indication and performance for the past few years.

Manager
ISIN
 Dim. of
fund
in mln €
TER
in %
Use of profitsDomicile of the fundReplication method
Amundi MSCI China UCITS ETF EUR (C)LU1681043912530.55% p.a.AccumulationLuxembourgUnfunded swap
Franklin FTSE China UCITS ETFIE00BHZRR147230.19% p.a.AccumulationIrelandTotal replication
HSBC MSCI China A Inclusion UCITS ETFIE00BF4NQ904210.30% p.a.DistributionIrelandTotal replication
HSBC MSCI China UCITS ETF USDIE00B44T3H884810.60% p.a.DistributionIrelandTotal replication
iShares China Large Cap UCITS ETFIE00B02KXK854480.74% p.a.DistributionIrelandTotal replication
L&G E Fund MSCI China A UCITS ETFIE00BHBFDF83240.88% p.a.AccumulationIrelandOptimized sampling
Lyxor China Enterprise (HSCEI) UCITS ETF – AccLU19000689142770.65% p.a.AccumulationLuxembourgUnfunded swap
Lyxor Hwabao WP MSCI China A (DR) UCITS ETF – AccFR0011720911660.35% p.a.AccumulationFranceOptimized sampling
Lyxor MSCI China UCITS ETF – AccLU1841731745650.29% p.a.AccumulationLuxembourgUnfunded swap
WisdomTree S&P China 500 UCITS ETF USDLU1440654330330.55% p.a.DistributionLuxembourgOptimized sampling
Xtrackers CSI 300 Swap UCITS ETF 1CLU07798009105960.50% p.a.AccumulationLuxembourgUnfunded swap
Xtrackers FTSE China 50 UCITS ETF 1CLU0292109856960.60% p.a.AccumulationLuxembourgTotal replication
Xtrackers Harvest CSI 300 UCITS ETF 1DLU08751603265120.65% p.a.DistributionLuxembourgTotal replication
Xtrackers MSCI China UCITS ETF 1CLU05146956901.2850.65% p.a.AccumulationLuxembourgTotal replication
source: justetf.com

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