How To Invest in The China Market Using A Robo Portfolio

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According to the World Bank, China’s Gross Domestic Product (GDP) growth rate was 5.9%, more than double that of the global GDP growth rate of 2.3% in 2019. However, many developed economies have even lower growth rates. The United States (U.S.)’s GDP growth rate was 2.2% in 2019 while the United Kingdom (U.K.)’s GDP growth rate was 1.5% and Singapore’s GDP growth rate was 0.7% in 2019. Not only is China’s growth rate much higher, but its contribution to global GDP was 16%, second only to U.S.’s 24%.

While the GDP of the U.S. is 1.5 times that of the GDP of China in 2019, the total market capitalisation (US$26.2 trillion) of the largest stock market in the US, the New York Stock Exchange (NYSE), is more than 3.7 times the total market capitalization (US$6.9 trillion) of the largest stock market in China, the Shanghai Stock Exchange. It’s unsurprising that investors are looking to gain more exposure to Chinese equities as they see the growth potential in the Chinese market.

In particular, Chinese technology companies have caught the attention of investors with big names such as Alibaba, Tencent and Xiaomi. In fact, Xiaomi is now the third-largest mobile phone supplier in the world, just behind Samsung and Apple. This is even more impressive when you consider that Xiaomi only expanded out of China in 2014.

With such growth stories coming from Chinese companies, especially from the technology and internet-related sectors, we need to also consider paying close attention to our portfolio exposure to the China market.

How Robo Portfolios Can Minimise The Complexity Of Investing In The China Market

One reason why some investors may hesitate to invest in the China market on our own is the lack of familiarity with Chinese equities. Due to China’s restrictions on foreign investments, it’s less straightforward to invest in Chinese equities. For example, there are different types of Chinese equities available: e.g. China A-shares which are traded mainly by mainland Chinese citizens, B-shares which are more widely available to foreign investors and H-shares that are traded through the Hong Kong Stock Exchange. These complexities can make it daunting for new investors to get started.

This is where robo advisors, like Syfe, can step in by providing an easy and cost-efficient way to invest in Chinese equities via a ready-made and fully-managed robo portfolio. Robo portfolios can offer diversified investment across all sectors and they can be more cost-efficient than investing in the underlying exchange-traded funds (ETFs) individually.

Most robo advisors like Syfe include an element of risk management (using their proprietary algorithms and the investors’ risk tolerance levels) which will determine the portfolio allocation between equities, bonds and cash and cash equivalents. This can reduce the downside risk of investing in a potentially volatile market.

Read Also: Investing With Syfe: 6 Things You Need To Know About This Singapore’s Robo-Advisor

Robo Portfolios Can Allow 100% Investment Into Equities (With Increased Allocation To The China Market)

For investors who want to be fully invested in equities, there are robo portfolios that allow for this option, like Syfe Equity100.

Equity100 is fully invested into equities through a number of broad-based ETFs that diversifies across the U.S., China, Europe and other markets. Equity100 uses a Smart Beta strategy that selects for factors that can potentially outperform and tilts the portfolio towards these factors.  In the latest April rebalancing of Equity100, these factors are tilted towards China, growth and low volatility.

Source: Syfe

This factor tilt significantly increases Equity100’s exposure to Chinese equities. Equity100 has a 17% allocation to China while a global equity ETF like Vanguard Total World Stock ETF has only a 4.5% allocation to China.

The increased allocation to China is achieved through the iShares MSCI China ETF (MCHI) and KraneShares CSI China Internet ETF (KWEB):

• MCHI provides exposure to large and mid-sized companies in China. Its top holdings include Alibaba, Tencent, Ping An Insurance and Baidu.
• KWEB provides exposure to Chinese Internet companies. Top holdings include Meituan, Pinduoduo, and JD.com.

Read Also: Syfe Equity100: Is This The Right Robo-Advisory Portfolio For Investors Who Want To Take On Higher Risk For Higher Returns?

Robo Portfolios Can Be Diversified (With Increased Allocation To The China Market)

For investors who want that increased exposure to Chinese equities while still maintaining a diversified portfolio holding stocks, bonds and gold, Syfe Core portfolios are an ideal choice.

There are three portfolio types: Core Defensive for conservative investors, Core Balanced for moderate investors, and Core Growth for growth-oriented investors. The equity component of all Core portfolios is the same as Equity100, while the bond and gold components provide the portfolio with downside protection.

Source: Syfe

This means that investors who choose Syfe Core portfolios enjoy the same Smart Beta methodology that is used in Equity100, within their own risk appetite. This includes an increased allocation to the China market, alongside growth and low-volatility factors. An investor with moderate risk tolerance can choose Core Balanced portfolio that has moderate exposure to equities and bonds and still benefit from the increased equity allocation to China.

Read Also: Syfe Core and Syfe Equity100: What Are the Differences Between These Two Robo-Advisory Portfolios?

Robo advisors can be a simple and cost-efficient way to invest in a diversified portfolio. Choosing a robo portfolio such as Syfe Equity100 can allow investors to benefit from a diversified portfolio while increasing their exposure to the China market. Investors who want some level of risk management can also choose to invest via Syfe Core portfolios that allow them to choose a portfolio suited to their risk tolerance, while still maintaining an increased exposure to China market through the equity component of the portfolio.

Both Equity100 and Syfe Core portfolios do not require any minimum investment amount. You can start investing with as little or as much as you prefer while enjoying the flexibility of withdrawing anytime with no fees.