China is now the second-largest economy after the US. It’s not surprising investors have been pouring money into the country, riding hot on the China concept. Unlike the US market, China has forex control regarding foreign investments. As such, you may have limited access to its capital market. To spare effort and time, you may invest in China market through exchange-traded funds(ETFs).
How do ETFs work?
Like other ETFs listed on exchanges, a China ETF is a pool of funds collected from investors focusing on tracking components like stocks or bonds from a Chinese securities index. You can reduce risks by investing in ETFs instead of investing in 1 or 2 stocks or bonds. Due to an ETF’s passively-investing style, you do not spend much time researching other investments.
You may have to think it over to outperform the market or index. An ETF invests in an index like S&P representing the US stock market. An active investor may prefer to invest in stocks or bonds directly rather than in an ETF if he wants to beat the market or index. Besides, you should keep an eye on the tensions between China and the US and the country’s fight against the pandemic.
Should I invest in an ETF?
Unlike other western markets, China differs on rules and regulations, Its economical structure is also distinct like no other place. An ETF is the best way in investing in China as you may find out why in the following.
- Diversification: Due to its differences from others, An ETF reduces legal and other inherent and unpredictable risks by tracking an index.
- A not-to-ignore market: China is the second-largest market and is about to grow by over 5% or above over the next years ahead. The opportunities are here to stay in the way forward.
- A hands-free investment: An ETF is a passively-managed investment fund mimicking the companies from an index. You invest in a market by investing in an ETF. You save time on locating and tracking individual investments.
- Low expense ratios: In contrast to their funds, an ETF has lower expense ratios of 1% or below. Lower ratios reduce costs and increase the return in other words.
How do I Buy China ETFs in Singapore?
What to consider in choosing a China ETF
- Types: China ETFs comprise different asset classes, e.g., stocks, fixed income, and leveraged products. ETFs with leveraged structures are risky. Currently, the Singapore stock exchange has 13 ETFs available to investors and does not offer leveraged ETFs. Of these, 5 are fixed-income ETFs, and the remaining 8 are stock ETFs. They are valued in currencies of CNY(Renminbi), Singapore dollars, the US dollars. You may look for the US markets where thousands of ETFs are available to ETF investors for more varieties.
- Returns: ETFs are long-term investment products. You should focus more on long-term performance and less on short-term market fluctuations. Therefore, five-to-ten-year returns are a good indicator regarding an ETF’s performance. In addition, you should choose an ETF with long operating history rather than a shorter one, if any. An ETF with a longer period may provide you with more data on its performance and cost structures, so you have more confidence while investing.
- Expense Ratios: The cost affects your return if an ETF charges a high expense ratio. It is an annual management fee you pay for running a fund. The expense ratio for ETFs is lower than actively-managed unit trusts. A unit trust may charge a yearly fee of 1.5% or above, while an ETF may collect fees from 0% to 0.94% in Singapore, depending on the asset class. Stock ETFs have higher expense ratios than fixed-income ETFs.
15 Best China ETFs to Invest
The following table lists the best China ETFs listed on the Singapore(SGX) and New York Stock Exchanges(NYSE) for your reference.
|ETFs||Indexes tracked||Expense ratios||Year-to-Date returns||1-year return||5-year return||Exchanges||Yield|
|KraneShares MSCI China Clean Technology Index ETF (KGRN)||MSCI China IMI Environment 10/40 Index(Equity)||0.79%||-11.35%||3.11%||68.50%||NYSE Arca||0.01%|
|iShares MSCI China A ETF(CNYA)||MSCI China A Inclusion Index(Equity)||0.60%||-5.86%||4.10%||54.56%||BATS(US)||1.02%|
|Global X MSCI China Energy ETF(CHIE)||MSCI China Index(Equity)||0.66%||-3.94%||-3.13%||15.41%||NYSE Arca||1.71%|
|WisdomTree China Ex-State-Owned Enterprises Fund(CXSE)||WisdomTree China Ex-State-Owned Enterprises Index(Equity)||0.32%||-9.26%||-34.36%||56.75%||Nasdaq GM||0.71%|
|VanEck Vectors ChinaAMC SME-ChiNext ETF (CNXT)||ChiNext Index(Equity)||0.65%||-13.04%||-12.57%||40.25%||NYSE Arca||0.01%|
|XTrackers-MSCI China UCITS ETF(LG9)||MSCI China TRN Index(Equity)||0.65%||-6.88%||42.95%||26.22%||SGX||N/A|
|SPDR S&P China ETF(GXC)||S&P China BMI Index(Equity)||0.59%||-5.86%||-28.59%||18.95%||NYSE Arca||0.97%|
|First Trust China AlphaDEX Fund(FCA)||Nasdaq China Index(Equity)||0.80%||-4.93%||-5.52%||22.13%||Nasdaq GM||3.1%|
|Global X MSCI China Ultilities ETF(CHIU)||MSCI China Index(Equity)||0.66%||-15.22%||12.21%||13.37%||NYSE Arca||3.76%|
|VanEck Veckors ChinaAMC China Bond ETF(CBON)||ChinaBond China High Quality Index(Fixed Income)||0.50%||0.97%||5.10%||13.03%||NYSE Arca||2.71%|
|iShare MSCI China Small-Cap ETF(ECNS)||MSCI China Small Cap Index(Equity)||0.59%||-10.45%||-23.56%||-4.50%||NYSE Arca||2.99%|
|Global X MSCI China Financials ETF(CHIX)||MSCI China Financials 10/50 Index(Equity)||0.65%||2.14%||-13.51%||-1.04%||NYSE Arca||3.38%|
|CraneShares China Leaders 100 Index ETF(KYFP)||CSI CICC Select 100 Index(Equity)||0.69%||0.65%||-8.48%||-12.60%||NYSE Arca||2.76%|
|Global X MSCI China Consumer Disc ETF(CHIQ)||MSCI China Index(Equity)||0.65%||-12.17%||-36.54%||70.76%||NYSE Arca||0.06%|
|iShare China Large-Cap ETF(FXI)||FTSE China Index 50(Equity)||0.74%||-4.70%||-28.70%||-9.51%||NYSE Arca||2.07%|
Where to buy the best China ETF
As a regional financial hub in Southeast Asia, Singapore is an investment center for locals and multinationals. Nevertheless, you have to follow procedures to prevent money laundering and terrorism financing. Here are typical steps you need to take and legal protocols used by most financial institutions in Singapore.
Step 1: Determine a China ETF
First, you should decide on an investment fit for your risk tolerance, investment horizon, and return expectations. You can use the above ETF information as your basis for identifying one or more suitable funds, or you can consult with your financial advisor in developing a portfolio appropriate to your financial circumstances.
Step 2: Open up a brokerage account
You may be aware stock exchanges offers most ETF services to investors. Thus a stock brokerage account is the best venue to buy a China ETF. Brokerages in Singapore offer comprehensive financial services like stock, bond, and ETF trading.
Required by regulations, financial institutions should do due diligence on their clients, and you have to provide your details and financial information, including the “Know-Your-Client” process. Once you have your information verified by brokerages, you can fund your account.
Step 3: Fund your account
Nowadays, you have numerous channels to fund your account. An app transfer from a mobile phone can do all the work in a few seconds. You may choose a conventional fund transfer to your brokerage account from your bank.
Besides, you may have to convert local dollars into foreign currencies like US dollars if you invest in the US market. An ideal currency rate is possible if you get prepared early.
Does the tension between China and the US impact my investment?
Some trade, political, and even military conflicts may arise in the future between the largest economies in the world. A global new order concerning finance, law, and order is coming to the world stage in the years to come. China hopes to create a new business model to pull the GDP figures by incentivizing her people to consume more and trade and investments. You should beware more of any opportunities arising.
How to choose a brokerage in Singapore?
Singapore has comprehensive investing laws and regulations protecting investors. Besides choosing a brokerage licensed by the Monetary Authority of Singapore, you should select a financial institution offering international investing services and competitive rates. Even though you may invest in the local market, you may save time and effort and get things in place when you invest overseas. Apart from banks like DBS and OCBC, international brokerages with advanced technology, like MooMoo, Tigers, Syfe, Saxo, offer the best terms on your trades.
Find out how to buy ETF in Singapore.
China ETFs offer new investing opportunities. Brokerages are a popular way of investing in China. You should review the investment tools carefully in the fees and returns of the ETFs and brokerages before picking the best ones fit for you.
As covered above, here are some concluding reminders:
1. An ETF is a mid-to-long-term investment.
2. In choosing what ETF to buy, you should consider ETF fees and longer-horizon return in perspective.
3. A brokerage with international investing services and competitive rates is a better choice.
4. ETF investing, including China ETFs, is suitable for passive investors opting for overall market growth.
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