Q&A Series: Gain diversified exposure to top onshore Chinese stocks with this ETF

The Phillip China Universal MSCI China A 50 Connect ETF is the first ETF listed on the SGX to track the MSCI China A 50 Connect Index, giving investors exposure to 50 leading companies across various industries in China’s A-shares market. As a feeder fund, it tracks the MSCI China A 50 Connect Index by investing in the underlying MSCI China A 50 Connect ETF, managed by China Universal Asset Management.

Compared to the stimulus policies after 2008, there has been a significant shift for the latest announced stimulus package. Previously, the focus was on infrastructure construction and relying on local governments to lead investments in real estate and various emerging industries. This time, there is a clear shift towards boosting household consumption and stimulating domestic demand, rather than emphasising the industrial side. Moreover, the Chinese central bank has also made significant breakthroughs in its policies regarding capital market stabilisation. China equities have become more attractive to international investors following the recent stimulus measures.

The A-share and H-share markets have long been serving different roles. Hong Kong operates as an offshore market with a higher level of foreign investments. This allows H-shares to benefit from greater access to global capital flows, especially during periods of economic uncertainty, when international investors often prefer the liquidity and trading flexibility in Hong Kong markets. In contrast, the A-share market primarily caters to domestic investors, with relatively less foreign ownership. In terms of industry distribution, A-shares and H-shares complement each other, providing varied opportunities for both local and international investors. 

The MSCI China A 50 Connect Index is constructed from the broader MSCI China A Index. This index includes the 50 largest free-float securities representing each Global Industry Classification Standard (GICS) sector, accessible through the Northbound Stock Connect, and maintains the sector weights in line with its parent index. Unlike other broad index products, it is specifically designed to replicate the long-term performance of China’s leading large-cap stocks, also referred to as the core equity assets of the Chinese market. The CSI 300 Index serves as a key broad market benchmark, encompassing the 300 largest stocks in the Chinese stock market. It is less effective to represent the performance of leading stocks. Additionally, since many of the large-cap stocks are concentrated in the financial and energy sectors, the sector coverage of the CSI 300 Index is more towards to these traditional sectors. 

The SGX-listed Phillip-China Universal MSCI China A 50 Connect ETF allows investors access to 50 leading Chinese companies in various industries in China’s A-shares, with a very diversified sector allocation. These leading companies are often considered as the pillars of China’s economic landscape and are characterised by strong fundamentals, stable performance, and significant market capitalisation.  

The ETF currently charges a very low management fee of 0.01% per annum of the NAV. Note that it is a feeder into the mainland-listed master ETF (China Universal MSCI China A 50 Connect ETF). This is the same approach as all other SGX-listed ETFs that utilise such feeder-master approach into China’s A-share market – essentially those ETFs that operate on the official ETF link between Singapore and mainland China.

Here is some information on the master ETF that this ETF feeds into: the China Universal MSCI China A 50 Connect ETF, which is listed on the Shanghai Exchange, is the biggest among its peers in AUM (6.66 billion RMB as of 30 September 2024), with a daily turnover of over 100 million RMB in the last 3 months. 

China equities have become more attractive to international investors following the recent stimulus measures, which focus more on boosting household consumption and stabilising the capital markets. The goal of the stimulus package is to revitalise economic growth and restore confidence. The combined factors will create a more favourable environment for China’s economic recovery. What we are experiencing in the last two weeks should be seen as the start of a revaluation of the China equities. For investors with no China exposure, it does not mean that they had missed the opportunity. Many China equities remain undervalued, suggesting there could be potential for upside as the market recovers. However, it is difficult for overseas retail investors to capture sector rotations, especially in the fast-moving markets like China. Broad-based ETFs offer a diversified range of investment opportunities across different sectors, making them more practical and efficient investment tool looking to gain exposure to China. Additionally, ETFs provide greater transparency and charge relatively low management fees, which are also attractive features for investors. 

The Phillip-China Universal MSCI China A 50 Connect ETF is currently the largest SGX-listed A-share ETF, which is an efficient tool for investors in Singapore to consider using to gain exposure to the China market. 

Important Information:

The responses are provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in the exchange-traded fund (“ETF”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the ETF and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before invest in the ETF. In the event that you choose not to obtain advice from a FA, you should assess whether the ETF are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM and any of its Participating Dealers (“PDs“).

An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.

Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the ETF. There can be no assurance that investment objectives will be achieved.

Where applicable, the ETF may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the ETF.

The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.

The information herein is not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The ETF is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the ETF. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published.

The Phillip-China Universal MSCI China A 50 Connect ETF is listed on the SGX and it is tracking the MSCI China A 50 Connect Index through feeding at least 90% of its assets into the underlying fund, CUAM MSCI China A50 Connect Exchange Traded Fund that is listed on the Shanghai Stock Exchange and is manage by China Universal Asset Management Co., Ltd.

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