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Invesco launches China ETF in Europe

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Invesco is launching an ETF in Europe, designed to provide investors with targeted access to the ChiNext 50 index, which comprises China’s largest and most liquid companies in the technology sector and other innovative industries. The Invesco ChiNext 50 UCITS ETF will follow a capped version of the index to reduce concentration risk and ensure sufficient diversification.

Gary Buxton, Head of EMEA And APAC ETFs and Indexed Strategies at Invesco, says: “One of the benefits of our global business model is having a strong local presence in major financial centres around the world.  In collaboration with Invesco Great Wall, our China mainland investment management joint venture and a leading China market specialist, we are pleased to partner with the Shenzhen Stock Exchange on the launch of a UCITS ETF linked to the ChiNext 50. Our new ETF offers investors unique access to the long-term growth potential in China, specifically as it relates to innovation driving the transition to a new economy. As the ChiNext 50 index celebrates its tenth anniversary in June, this ETF also marks a milestone in the expansion of the index overseas, accelerating the internationalization of China A-shares.”

Invesco writes that China is one of the world’s fastest-growing markets with ongoing development in key areas of economic growth, including technology. “Part of the country’s current Five-Year Plan is an objective to increase spending on research and development (R&D) by at least 7 per cent year on year between 2021 and 2025, focusing on areas where high-value patents are expected. For equity investors, higher R&D spending can be a significant driver of corporate earnings growth.”

The ChiNext 50 index reflects the performance of 50 of the largest and most liquid securities listed on the ChiNext market of the Shenzhen Stock Exchange. The capped index being followed by the Invesco ETF includes the same constituent securities of the parent index and applies caps such that at each quarterly rebalance, no individual security weight exceeds 8 per cent and the aggregate weight of securities with weights above 4.5 per cent do not exceed 38 per cent.

Chris Mellor, Head of EMEA Equity ETF Product Management at Invesco, says: “While the index has no explicit sector requirements or restrictions, investors can expect it to be naturally overweight technology, industrials and health care. The fund will invest in companies involved in innovative, fast-growing areas such as artificial intelligence, electric vehicles, renewable energy, robotics, automation and biotech. Compared to broader Chinese indices, the average company in the ChiNext 50 index has used more than twice as much of its operating revenues in each of the past six years to fund R&D and drive innovation.”

The ETF will employ a replication method that seeks to hold, as far as possible and practicable, all the securities in the index in their respective weightings, but the fund will employ sampling techniques in circumstances where this is not reasonably possible.

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