China ETFs on SGX show promise after One Belt, One Road
Investors eyeing mainland again as Beijing looks to boost economy with One Belt, One Road project
China's One Belt, One Road (OBOR) initiative - which aims to create the world's largest platform for economic cooperation - has caught the attention of governments and businesses worldwide.
The ambitious project was first proposed by Chinese President Xi Jinping in 2013, but made international headlines recently when the Belt and Road Forum for International Cooperation was held in Beijing last month.
Investors are also looking at the world's second largest economy, which has been reporting signs of slowing in recent years, with renewed eyes.
After all, opportunities abound as 65 countries across three continents have expressed interest in participating in the OBOR action plan.
In the year so far, funds have been streaming into the country.
China has seen the highest level of equity inflows in the region, with a net inflow of US$18.9 billion (S$26 billion), noted the Singapore Exchange (SGX) in a report last week.
Investors keen on being a part of China's latest comeback can consider China exchange-traded funds (ETFs) on the SGX.
The four listed on SGX have generated a total return of 0.5 per cent and 4.4 per cent in the month-to-date and year-to-date respectively.
This brings their 12-month total return to 19.2 per cent.
ETFs are investment funds listed and traded intraday on a stock exchange. Most ETFs aim to track the performance of an index, and the China ETFs on SGX are largely dependent on the performance of mainland Chinese companies.
Only two of these ETFs are classified as Excluded Investment Products (EIP), which means they are accessible to all investors.
They are db X-trackers FTSE China 50 UCITS ETF and db X-trackers MSCI China Index UCITS ETF, both managed by Deutsche Asset Management.
Both indexes are reviewed and re-balanced at least quarterly, and the companies are selected on the basis that they have the largest combined value of readily available shares as compared to other companies on the stock exchange.
The former ETF, which was launched in 2007, is designed to reflect the performance of the shares of 50 mainland Chinese companies whose shares are listed on the Hong Kong Stock Exchange.
According to a fact sheet provided by Deutsche Asset Management, these companies have a market capitalisation of US$674.9 billion. More than half of the companies on the index are in the financial sector.
The ETF has a dividend yield of 2.78 per cent and its price-to-earnings (P/E) ratio is 10.07, as of April 28.
The MSCI China TRN Index, which was launched in 2010, tracks large and medium sized companies.
It is made up of companies incorporated in mainland China, and listed either in Shanghai, Shenzhen or Hong Kong.
In addition, the MSCI China universe also includes Red Chip and P-Chip shares - Chinese-owned companies listed on the Hong Kong Stock Exchange but incorporated outside China.
The index is made up of 149 companies in five countries, with a market capitalisation of US$1.2 trillion. More than half of these companies are from the information technology and financial sectors.
The ETF has a dividend yield of 1.95 per cent and its P/E ratio is 15.22, as of April 28.
Another point to note is that both indexes are calculated on a total return net basis, which means all dividends and distributions by the companies are reinvested in shares after tax.
In their marketing material, Deutsche Asset Management stated the key risks involved with investing in the fund.
"(It) is exposed to less economically developed economies (known as emerging markets), which involve greater risks than well developed economies.
"Political unrest and economic downturn may be more likely and will affect the value of your investment. The fund is (also) exposed to stock market movements in a single country or region which may be adversely affected by political or economic developments, government action or natural events that do not affect a fund investing in broader markets."
For now, China's massive project seems to be on track.
Total trade between China and other OBOR countries from 2014 to 2016 has already crossed the $3 trillion mark, and China's investment in those countries has surpassed $50 billion, noted SGX's report.
It said: "A report by credit rating agency Fitch described the programme as driven primarily by China's efforts to extend its global influence, with genuine infrastructure needs and commercial logic taking a back seat to political motivations."
Other options for investing in China
Besides China exchange traded funds, there are other options for those who wish to invest in China.
SGX lists three real estate investment trusts (Reits) that are exclusively invested in Mainland China property - CapitaLand Retail China Trust, EC World Reit and BHG Retail Reit.
The trio have averaged a 13 per cent total return in the year-to-date, in-line with the SGX S-Reit 20 Index gain of 13.4 per cent.
These China Reits are all retail related.
CapitaLand Retail China Trust was the first China shopping mall Reit to list in Singapore in 2006.
BHG Retail Reit was the first retail Reit sponsored by an established Chinese home-grown retail property operator to list in Singapore in 2015.
EC World Reit invests in a portfolio of income-producing real estate used primarily for e-commerce, supply-chain management and logistics purposes and was listed in 2016.
Investors can also consider six other Singapore Reits and one stapled security with Chinese assets.
They are Mapletree GCC Trust, Mapletree Logistics Trust, Ascott Residence Trust, Starhill Global Reit, OUE Commercial Reit, Ascendas Hospitality Trust and Cache Logistics Trust.
These trusts have averaged a total return of 11.7 per cent in the year-to-date. - LINETTE HENG