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Morningstar publishes guide to using ETFs to invest in Chinese equities


Morningstar has published a guide outlining the opportunities and risks investors face when accessing Chinese equities through exchange-traded funds.

The guide presents a comprehensive overview of global ETFs that offer exposure to Chinese equities, the nuances of investing in Chinese stocks, and the importance of an ETF’s underlying exposure and relevant fundamentals.
There are more than 50 country, sector, and strategy indices tracked by approximately 100 Chinese equity ETFs listed on various exchanges outside of China, totalling some USD28bn in assets under management. The report highlights the risks associated with investing in Chinese ETFs, including ETF-specific structural risks, market risks, and currency risk.
Additionally, the report highlights considerations regarding taxation and quota-related premiums and discounts for those ETFs investing in China A-Shares, or shares issued by companies incorporated in China that trade on the Shanghai and Shenzhen stock exchanges, that are directly available to domestic Chinese investors, Qualified Foreign Institutional Investors (QFIIs), and Renminbi Qualified Foreign Institutional Investors (RQFIIs).
Ben Johnson, director of global passive fund research for Morningstar, says: “Chinese equities are popular among investors in Asia, and Chinese equity ETFs present a vehicle for global investors who would like to tap opportunities in this country, especially as China expands its presence in the global financial markets. In recent years, the Chinese government has become increasingly keen to open its local securities market to the rest of the world. The growing crop of RQFII ETFs provides access to offshore investors looking for exposure to the local A-Share market, and these funds have successfully gathered assets. The expansion of the RQFII programme and the success of RQFII ETFs have created the need for more investor education on these topics.”

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