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Guide To Investing In Chinese Equities Via Unit Trusts And ETFs

You don’t have to cross the Great Wall of China to invest in its market.

In virtually every household, it’s highly likely there will be multiple items that were either manufactured in China or produced by Chinese companies. This extends beyond our homes. Major Chinese brands spanning across various sectors, from financial institutions to e-commerce, food & services, and even property developers, have not only become familiar names but integral to our daily lives.

Hence, it’s only natural to consider investing in these companies, particularly given China’s status as the second biggest and fastest-growing economy, with a population size of around 1.4 billion people.

Read Also: Largest China Companies That We Can Invest In Today

Why Invest In The Chinese Market And Its Companies

In contrast to past decades dominated by innovations from US companies, Chinese companies have made significant strides in closing the gap with investments in research and development. The country itself has made huge investments in its infrastructure and key growth sectors, such as renewable energy and infocomm technology. It has also undertaken massive investments with its Belt-and-Road initiative, which it intends to stretch around the globe to foster trade between partner countries.

As investors, diversifying our portfolio across various markets instead of relying solely on our home market can help mitigate our investment risks and lessen the impact of market fluctuations. For instance, Chinese equities—A-shares—historically demonstrated a low correlation of 0.31 with other global markets over the last 10 years. In other words, Chinese equities move independently almost 70% of the time.

Additionally, as an emerging market with exposure to major economies around the world, China may offer greater upside potential than developed or smaller-sized markets. Presently, amid economic reforms and a slowdown, Chinese equities—the MSCI China A Onshore Index—are trading at attractive valuations of close to 11x forward PE, which is well below the long-term historical average.

Source: Allianz Global Investors – MSCI China A Onshore – Forward 12 Month P/E Ratio

This may present investors with an opportune time to explore entry into the Chinese markets.

How To Get Exposure

While investing in foreign markets like China may be lucrative, accessibility to the local bourses—the Shanghai Stock Exchange or the Shenzhen Stock Exchange—may pose some challenges for Singapore investors.

Instead of investing in single stocks, which may require more knowledge and limit the diversification benefits, we could get exposure to the overall Chinese market or selected sectors through exchange-traded funds (ETFs) or unit trusts.

Read Also: 9 ETFs You Can Invest For Exposure To The China/Hong Kong Market

Investing In Chinese Equities Via ETFs

An effective way to get exposure to Chinese companies is through Exchange-Traded Funds (ETFs). These are passively-managed investment funds consisting of a collection of securities that are traded on stock exchanges like stocks. They typically track an underlying index to closely mimic its performance with low operating costs.

One way we can invest in ETFs is through Syfe, which is an investment platform that offers managed portfolios, brokerage services, and dedicated wealth advisory services. It constructs its portfolios using low-cost and high-trade volume ETFs based on a rules-based and systematic strategy to capture long-term returns.

Under its collection of managed thematic portfolios, it offers the China Growth theme portfolio. The fund invests in Chinese equities within the fast-growing consumer, internet, healthcare, and clean tech sectors.

The portfolio consists of the following ETFs:

  • KraneShares BOSERA MSCI China A 50 Connect Index (41.40%)
  • KraneShares China Internet (15.27%)
  • WisdomTree China Ex-State-Owned (14.26%)
  • IShares MSCI China (10.06%)
  • KraneShares MSCI China Clean Technology Index (8.74%)
  • KraneShares MSCI All China Health Care Index (5.23%)
  • Global X China Consumer Discretionary (5.04%)

If we are new to investing and wants exposure to the Chinese market, we could leverage the portfolio constructed by Syfe’s investment team. Otherwise, if we are familiar with the Chinese market and wish to vary the exposure levels to the different sectors, we could choose to build a customised portfolio.

We could do this via Syfe Select Custom, which allows investors to select from a pre-selected list of over 100 institutional grade ETFs. We could either build a China portfolio from scratch consisting of up to 8 ETFs or make adjustments to the China Growth thematic portfolio that suit our objectives.

Syfe charges between 0.25% and 0.65% per year in fees (based on the asset value of our portfolio) across its suite of managed portfolios, including the Syfe Select Custom. There is also no minimum investment amount or minimum commitment period for investing with Syfe.

Read Also: Investing With Syfe: 7 Things You Need To Know About This Singapore’s Robo-Advisor

If you are interested in getting started on investing with Syfe, DollarsAndSense has an exclusive partnership with Syfe – enjoy a 0% management fee for the first $30,000 during the first 6 months after you sign up. Apply here to enjoy the promotion. 

Investing In Chinese Equities Via Unit Trusts

Alternatively, we could consider investing in unit trusts for exposure to the Chinese market. These are investment funds that are actively managed by professional managers with the aim of beating the benchmark index that they track.

One way we could invest in unit trusts is with Endowus, a Singapore-based independent fee-only wealth and fund platform. It uses proprietary systems to provide data-driven wealth advice for constructing personalised portfolios built on institutional-quality funds at the lowest cost possible.

Among the collection of advised portfolios, we can gain exposure to China Equities via their Endowus Satellite portfolios. The fund invests 100% in Chinese equities, consisting of the following funds managed by leading China fund house specialists:

  • 50%: JP Morgan China A-Share Opportunities Fund
  • 20%: Schroder ISF Greater China Fund
  • 15%: FSSA Regional China Fund
  • 10%: Allianz All China Equity Fund
  • 5%: abrdn SICAV I – China A Share Sustainable Equity Fund

The fund has an annualised return of 8.46% and annualised volatility of 19.57% over a 5-year period from January 2019 to December 2023. With the China Equities portfolio, we can rely on the expertise of Endowus investment team to select the best funds to capture the opportunities in the Chinese market.

Additionally, Endowus also offers investors more choice and control over their investment portfolio with the Endowus Fund Smart. The platform allows investors to create their own investment portfolio consisting of up to 8 funds from a choice of over 200 best-in-class funds. We could also determine the allocation level for each fund in the portfolio. This could be beneficial if we have preferences for the funds that we wish to invest in.

Endowus prides itself on its low and transparent fees for its portfolios, with only a single fee, and no sales or transaction charges. It also offers a 100% cashback on trailer fees on the funds bought with Endowus. For satellite portfolios like China Equities, Endowus charges 0.4% of the asset invested using CPF or SRS funds and between 0.25% and 0.6% if it’s a cash investment. On the other hand, Endowus charges a flat 0.35% for single funds bought using Fund Smart regardless of the method of purchase.

Read Also: Understanding Endowus: How This FinTech Investment Advisor Will Help S’pore Investors Access Superior Global Portfolios At Low Cost

Invest Better With Endowus

If you’re interested to start investing with Endowus, you’ll be happy to know that DollarsAndSense readers can enjoy $20 off their access fee (equivalent to $10,000 advised free, assuming an access fee of 0.40%). Sign-up using this link to claim this special offer. Terms & Conditions apply.

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