Today, Emerging Market investors have a new tool in their toolbox. Deutsche Asset & Wealth Management released their latest emerging market ETF named db X-trackers Harvest MSCI All China Equity Fund (CN, quote).
Shanghai skyline at night
In the past, if emerging market investors wanted exposure to China, it was done through iShares China Large-Cap ETF (FXI, quote). The iShares China Large-Cap ETF only tracked 25 shares traded on the Hong Kong exchange, providing a small snap shot of the Chinese market.
When the FXI was created back in October 5, 2004, accesses to foreign markets were limited. Fast forward to today and we see much more open global markets compared to 2004.
This has allowed Deutsche Asset & Wealth Management to create a more robust ETF representing China’s economy on broader and deeper scale.
If we dig into the FXI ETF, we find 25 high volume stocks traded only on the Hong Kong exchange that are focused heavily in the Financials.
Because of the increased access to China’s markets, we now have an ETF that actually contains 146 stocks, according to the ETF’s site page, and exposure to db X-trackers Harvest CSI 300 China A-Shares Fund (ASHR, quote) effectivly allows the ETF to track some 446 stocks and ADRs.
CN’s Net Expense Ratio of 0.71% ratio is slightly better than FXI Net Expense Ratio 0.73%, sweetening the deal.
What I like most about CN ETF is not only the broader deep mix of stocks that actually trade on the China exchange, but the controlled exposure to the ASHR ETF. AHSR is also a fairly new ETF launched in November last year that is comprised of 300 China A-Shares. A-Shares can only be bought by Mainland Chinese Citizens and, recently, by qualified foreign investors through tightly controlled access points.
Both the CN and ASHR now provide emerging market investors access to A-Shares and stocks traded directly on China’s exchange.
BUT, and this is a BIG BUT, do not run out and sink your life savings into the CN ETF. You will not see me in this ETF for some time. I want to watch the performance of the ETF before investing. I want to see significant volume from the big players. During this time period we can watch the ETF’s:
- Volume
- Price Action
- How well it tracks the China’s markets
- Overall Performance
- Bid/Ask Spread
- Will there options to hedge positions?
Remember, there have been several other ETFs that have fallen short competing against the FXI ETF.
Just look at Market Vectors ChinaAMC A-Share ETF (PEK) launched back in October 2010 as $50 ETF and now trades below $30 on a next to nothing volume with a dime spread.