ETF Of The Week: China ETF ‘ASHR’ Bruised

July 12, 2018

It wasn't supposed to be this way.

In June, MSCI finally added China A-shares to its MSCI Emerging Markets Index. (China divides its shares into several "classes": A-shares are Chinese stocks denominated in renminbi and traded on local exchanges in Shanghai and Shenzhen.)

MSCI's inclusion of A-shares was supposed to help facilitate greater investment in China and in emerging markets as a whole, by offering investors greater access to the large, successful companies on the Chinese mainland.

Then Trump's trade war happened.

Last Friday, $34 billion worth of tariffs on Chinese goods went into effect, with China implementing their own tit-for-tat retaliatory tariffs shortly thereafter. This comes in addition to the blanket 25% steel and 10% aluminum import tariffs that went into effect earlier this year.

Then on Tuesday, Trump announced even more tariffs on more than 6,000 Chinese goods, together worth $200 billion. As expected, China's threatened more tariffs of its own.

All this has taken the steam out of the Shanghai Stock Market, which has dropped 14% year-to-date.

A-Shares ETFs Stumble
Predictably, China A-shares ETFs have plummeted, too, and it comes at a time when the role of A-share specific ETFs is questionable.

For years, A-shares ETFs were the only way investors could access these securities. Now, however, A-shares will appear in broad emerging markets benchmarks, making ETFs dedicated to the share class somewhat obsolete.

Though several ETFs hold China A-shares, two particular funds hold the lion's share of assets: The $586 million Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR) and the $405 million KraneShares Bosera MSCI China A Share ETF (KBA).

ASHR is the larger and older of the two; it also offers more vanilla exposure to A-shares than KBA. ASHR tracks 309 of the largest, most liquid Chinese companies, weighted by market capitalization. 

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