China’s economy has been growing at a swift rate for many years, making it one of the world's strongest markets for rapid growth, though growth has slowed down in the last few years. Despite the slowdown, China's economy is expected to overtake the U.S. as the largest economy in the world by 2030.
China has been growing rapidly since it initiated market reforms in 1978. Its gross domestic product increased by 8.1% in 2021, versus an increase of 5.5% in the U.S. Meanwhile, China’s unemployment rate is approximately 5.5% as of February 2022, its highest rate in a year.
For investors looking to profit from China's economic rise, there are a few ways to invest. One of the simplest is to allocate capital towards exchange traded funds (ETFs) that focus on the Shanghai Composite Index.
Key Takeaways
- Foreign investors looking to invest in China can look to ETFs that track the Shanghai Composite Index, which follows the A and B shares of companies on the Shanghai Stock Exchange.
- Some of the largest holdings of the Shanghai Composite Index includeICBC, China State Construction, Sinopec, and PetroChina.
- Although several options exist, the DWS Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR) is one of the most popular ways to invest in Chinese stocks.
The Shanghai Composite
The Shanghai Composite Index, launched in 1991, follows all of the class A and class B shares that are listed on the Shanghai Stock Exchange, which is the biggest stock exchange in mainland China. Among its many stocks areKweichow Moutai Co., PetroChina, Industrial and Commercial Bank, Agriculture Bank of China, Bank of China, and China Merchants Bank.
The Shanghai Composite Index is one of the most often-cited indices to measure the economic health of China, but foreign investors generally do not have direct access to investing in it because of tight controls by Chinese authorities. Instead, they must turn to exchange traded funds (ETFs).
The Top Shanghai Composite ETF
One of the most popular ways to invest in Chinese stocks is through the DWS Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR). This fund allows U.S. investors to invest in China Class A shares listed on Shenzhen and Shanghai exchanges through a partnership with Deutsche Bank and Harvest Global.
The fund's investment objective is to seek results that correspond to the performance of the China Securities 300 Index (CSI 300 Index), which focuses on the top 300 stocks of the Shanghai Stock Exchange.
$17.7 trillion
China's GDP in 2021, which grew from $14.9 trillion in 2020.
As of March 29, 2022, the fund has net assets of $2.1 billion with a net expense ratio of 0.65%. The ETF is listed on the NYSE and has a five-year average annualized return of 11.82%.
The fund's assets are concentrated in the financial sector, which makes up 23.41% of the portfolio. The other industries with a large focus include consumer staples (14.42%), industrials (14.04%), IT (13.61%), and healthcare (9.63%).
The ETF's top holdings include Kweichow Moutai, Contemporary Amperex Technology, China Merchants Bank, Ping An Insurance, Longi Green Energy, and Industrial Bank.
Other Options for Chinese ETFs
While the Harvest CSI 300 China-A Shares ETF is likely the most direct way to follow Shanghai-listed shares, plenty of other ETFs can help investors follow the growth in Chinese stocks.
They include the iShares Core CSI 300 ETF, the KraneShares Bosera MSCI China A 50 Connect Index ETF (KBA), and COSP FTSE China A50 ETF.
The iShares Core CSI 300 ETF seeks to track the performance of the CSI 300 index. The fund has an expense ratio of 0.50%, $59 million in assets as of March 29, 2022, and has a large focus on financials and industrials. The fund has a five-year average annualized return of 7.28% as of Feb. 28, 2022.
The KraneShares Bosera MSCI China A ETF tracks the MSCI China A International Index that follows large-cap and mid-cap Chinese stocks on the Shenzhen and Shanghai Stock Exchanges. The fund has net assets of $571 million as of March 29, 2022, a net expense ratio of 0.56%, with a five-year average annualized performance of 10.67%.
Finally, the CSOPFTSEChina A50 ETF tracks the FTSE China A50 Index. The fund has net assets of $1.3 billion as of March 29, 2022, and an expense ratio of 0.99%. The fund's primary holdings are in the financials and consumer staples sectors.
What Is the Main Stock Index in China?
The main stock index in China is the Shanghai SE Composite Index. The index represents all of the stocks traded on the Shanghai Stock Exchange.
How Can I Buy Shanghai Stock?
To purchase shares on the Shanghai Stock Exchange, you can purchase American depository receipts (ADRs), invest in mutual funds or exchange traded funds (ETFs) that have exposure to the exchange, as well as invest with market makers that can access the exchange.
Is the Shanghai Stock Exchange Large?
Yes, the Shanghai Stock Exchange is large. It is the third-largest stock exchange in the world after the New York Stock Exchange and the Nasdaq in terms of market capitalization.
The Bottom Line
If you want to invest in the Shanghai Composite Index with access to China’s A-Share stocks, first consider the Harvest CSI 300 China-A Shares ETF. But other ETFs offer a way to invest in China’s rapidly growing economy as its markets slowly open to foreign investments.
