Investing in China: Choosing the best ETF for your portfolio

This post was created in partnership with CSOP Asset Management Pte. Ltd. All views and opinions expressed in this article are Beansprout's objective and professional opinions.

What happened?

China’s market recently saw a significant bounce, driven by a new wave of government stimulus aimed at revitalising the economy. 

Investor optimism surged following the government’s commitment to economic growth through measures like liquidity injections and targeted support to the real estate sector. 

If you’re looking to gain exposure to this economic recovery, I’ll share some popular exchange-traded funds (ETFs) that provide access to Chinese stocks.

6 ETFs which offer exposure to China’s market opportunities

An ETF, or Exchange-Traded Fund, is a basket of investments that trades like a stock. 

If I want exposure to a sector or market, like China, I can buy an ETF that holds multiple companies, giving me diversification with one investment.

ETFs track specific indexes or sectors, and they’re popular for being affordable, diversified, and easy to trade. 

In China’s complex market, ETFs offer broad exposure while reducing risks from individual stock picking, making them a smart option for navigating regulatory and economic shifts.

Here, I’ll introduce 6 ETFs from CSOP Asset Management that provide exposure to China.

Founded in 2008, CSOP was a pioneer in launching China-focused ETFs for international markets, offering investors access to both onshore and offshore Chinese markets.

As one of the largest ETF issuers in Hong Kong, CSOP’s total assets under management surpassed US$15.3 billion by 31 July 2024, cementing its strong market position. 

Beyond their size, CSOP’s ETFs are among the most actively traded. In the first seven months of 2024, five of their ETFs ranked in the top 10 most actively traded in Hong Kong, showcasing their popularity and investor trust.

CSOP Asset Management is a subsidiary of China Southern Asset Management, one of China’s largest asset managers, with US$301.4 billion in assets as of 31 March 2024, underscoring its influence in the financial sector.

Earlier, we shared that the factors we would consider when investing in ETFs would include:

• Index methodology and sector exposure
• Dividend yield
• Fees and charges
• Listing exchange

The following is a comparison of the ETFs based on these metrics.

CSOP Hang Seng Index ETF (3037 HK) – A simple way for investors to gain exposure to China

The Hang Seng Index (HSI) tracks the largest and most liquid companies listed on the Hong Kong Stock Exchange. Through the CSOP Hang Seng Index ETF, investors can access a range of companies operating in China.

This ETF includes major sectors such as finance, utilities, and telecommunications, featuring Chinese giants like Alibaba and Tencent, along with international firms with China exposure, such as AIA and HSBC.

With a low management fee of 0.1% p.a., the CSOP Hang Seng Index ETF offers a cost-effective way to gain broad exposure to China’s market. Its sector diversification also helps mitigate risks compared to more concentrated indices, such as those focused solely on technology.

In addition, Hong Kong’s financial market is highly liquid and operates under a strong regulatory framework, providing investors with greater transparency especially during periods of market volatility.

CSOP FTSE China A50 ETF (2822 HK) – Exposure to mainland China

The CSOP FTSE China A50 ETF tracks the top 50 A-share companies listed in China, offering exposure to key segments of the Chinese economy.

This ETF focuses on blue-chip stocks, including major financial institutions like Bank of China, ICBC, and Ping An Insurance, along with consumer leaders like Kweichow Moutai, China’s top baijiu producer.

However, the A50 index does not include popular tech giants such as Alibaba and Tencent, as the majority of its constituents are in more traditional sectors within China’s onshore markets.

CSOP Hang Seng Tech ETF (3033 HK) – Exposure to leading Chinese tech ETFs

To gain direct exposure to leading Chinese tech companies, we can consider the CSOP Hang Seng Tech ETF.

The CSOP Hang Seng Tech ETF focuses on leading technology firms listed in Hong Kong, capturing opportunities in China's tech sector.

This would include names such as Alibaba, Tencent and Xiaomi. 

Notably, the CSOP Hang Seng Tech Index ETF has assets under management of HKD 39.2 billion as of 16 October 2024, which is the biggest traded ETF tracking Hang Seng Tech Index in the world.

It is also the top 3 most actively traded ETFs in Hong Kong, with an average trading value of HK$ 1.7 billion from January to July 2024. 

CSOP CSI 300 Index Daily (2x) Leveraged Product (7233 HK) – Leveraged exposure to China market 

The CSOP CSI 300 Index Daily (2x) Leveraged Product offers leveraged exposure to the CSI 300 Index, which tracks the top 300 A-share companies in China, including names like Kweichow Moutai and Ping An Insurance.

This ETF aims to amplify short-term returns, but it also increases risks, making it suitable for investors seeking to capitalize on short-term market movements.

For example, we see that the CSOP CSI 300 Index Daily (2x) Leveraged Product generated a positive return of +43.8% in the one month to 30 September 2024, exceeding the returns of the CSOP Hang Seng Tech Index ETF and CSOP Hang Seng Index ETF in a buoyant market environment.

Given its higher risk profile, I would only consider the CSOP CSI 300 Index Daily (2x) Leveraged Product if I have a high-risk tolerance.

CSOP Huatai-PineBridge SSE Dividend Index ETF (SGX: SHD) – Higher dividend yield compared to Hang Seng Index

The CSOP Huatai-PineBridge SSE Dividend Index ETF tracks the SSE Dividend Index, consisting of 50 Chinese companies known for stable dividends.

This would include companies such as China Merchants Bank, which has a dividend yield of 5.1% as of 17 October 2024.

As of 30 September 2024, the dividend yield of the SSE Dividend Index is 5.40%.

This is above the dividend yield of the Hang Seng Index of 3.51%, and the dividend yield of the FTSE China A50 Index of 2.85%,

The CSOP Huatai-PineBridge SSE Dividend Index ETF trades on the Singapore Exchange, and you can buy the ETF using your SRS funds. 

CSOP CSI STAR and CHINEXT 50 Index ETF (SGX: SCY) – Focus on growth-oriented sectors

The CSOP CSI STAR and CHINEXT 50 Index ETF targets growth-oriented sectors in China's STAR and ChiNext markets, focusing on tech and innovation.

This would include names such as Contemporary Amperex Technology (CATL), the leading global EV battery manufacturer and supplier to Tesla. 

The CSOP Huatai-PineBridge SSE Dividend Index ETF trades on the Singapore Exchange, and you can buy the ETF using your SRS funds. 

What are the risks of investing in China?

While all the listed ETFs have delivered positive year-to-date returns, I’ve noticed that several experienced significant losses in prior years. 

For example, the Hang Seng Tech Index ETF faced losses from 2021 to 2023, reflecting the tough challenges China’s tech sector faced due to regulatory crackdowns and global market pressures.

In addition, leveraged products can offer the potential for high returns, but they come with substantial risk. 

On the other hand, broad index and dividend-focused ETFs provide more conservative options, balancing income with the potential for moderate growth—an approach I’d consider if I’m aiming for steadier returns over time.

What would Beansprout do? 

With the Chinese government ramping up stimulus efforts, I think it might be a good time to take another look at the China market.

There are several ways investors can gain exposure to this market.

If you are looking to gain broad exposure to China, the CSOP Hang Seng Index ETF (3037) covers leading Hong Kong-listed companies including Chinese giants like Alibaba and international firms with China exposure like HSBC, with a low management fee of 0.1% p.a. 

If you are looking to access mainland China’s leading companies, the CSOP FTSE China A50 ETF (2822) focuses on blue-chip firms listed domestically, such as Bank of China and Kweichow Moutai.

If you are looking to capture opportunities in China’s tech sector, the CSOP Hang Seng Tech ETF (3033) provides exposure to major companies like Alibaba, Tencent, and Xiaomi, making it one of Hong Kong’s most actively traded ETFs. It is also the largest ETF tracking the Hang Seng Tech Index in the world.

If you are looking for amplified returns in volatile markets, the CSOP CSI 300 Index Daily (2x) Leveraged Product (7233) offers leveraged exposure to the top 300 A-share companies. 

If you are looking to invest in companies with stable dividends, the CSOP Huatai-PineBridge SSE Dividend Index ETF (SHD) offers a dividend yield of 5.4%, higher than other major China-focused indices.

If you are looking to focus on growth-oriented sectors, the CSOP CSI STAR and CHINEXT 50 Index ETF (SCY) focuses on growth-oriented sectors and innovative companies like CATL. 

To learn more about these ETFs, visit the CSOP website.

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