Chinese ETFs: All Things Considered

October 27, 2016

Plenty Of Room For Growth

Our research concludes that there is much more room to grow for Chinese-based ETFs, despite the dominance of a few issuers.

First, while there are many Chinese ETFs listed in the U.S. already, most of them are based on market-cap-weighted indexes. If the U.S. ETF growth trend is any indication for what is to come for the Chinese ETFs, we are likely to see the need for smart-beta ETFs that track indexes with weighting schemes other than market capitalization.

Second, there is only a handful of dedicated fixed-income Chinese ETFs, an area that will likely see growth as investors seek higher yield.

Third, there are very few ETFs in the U.S. that track A-shares, local Chinese companies listed on the Chinese stock exchanges. Many of these firms represent the new economy, the fastest-growing part of the Chinese economy. U.S.-based investors are missing out hugely in this area.

No Issuer Commanding The Space

Lastly, our research also suggests there is no apparent authority among the issuers that have already established a full range of Chinese ETFs products. This creates opportunities for those issuers that might be able to compete with the giants using their investment strength in both depth and scope.

In a follow-up series, I will examine these issues from the perspectives of China-listed Chinese security ETFs.

At the time of writing, the author held a position in FXI.



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