Exposure to China A-Shares
Accessing Chinese companies listed in mainland China (A-Shares) has historically been very difficult for foreign investors due to governmental restrictions. PowerShares China A-Share Portfolio is the first exchange-traded fund (ETF) to provide efficient and liquid exposure to the China A-Share market primarily through investments in the SGX FTSE China A50 Index futures.
Due to significant differences between the domestic A-Share market and other share classes which can be globally accessed, like H-Shares, prices of Chinese companies may differ greatly among those share classes. For example, H-Shares have historically traded at steep discounts to A-Shares, resulting in significant performance differences. Since 2005, the yearly average discount of H-Shares to A-Share is 13.6%.1
Liquid & Efficient Alternative
The use of the SGX FTSE China A50 Index futures is designed to provide exposure to China A-Shares. The SGX FTSE China A50 Index futures is the only offshore futures on the China A-Share market without any qualified foreign institutional investor (QFII) requirements, and is the most liquid offshore China A-Share investment vehicle.2 The U.S. Commodity Futures Trading Commission (CFTC) approved trading of the SGX FTSE China A50 Index futures by US investors in 2012.3
PowerShares China A-Share Portfolio provides investors an expense ratio of 0.50% — 23 basis points (bps) less than its Morningstar category average. This cost differential may have significant implications on portfolio performance.
1 Source: Bloomberg L.P., as of Aug. 31, 2013. H-Share Discount to A-Share is represented by the Hang Seng A-H Premium Index.
2 Source: Singapore Exchange (SGX), as of Aug. 31, 2013
3 Source: Singapore Exchange (SGX), as of Jan. 30, 2012
4 Since ordinary brokerage commissions apply for each buy and sell transaction, frequent trading activity may increase the cost of ETFs.
PowerShares China A-Share Portfolio is an actively managed ETF providing exposure to the China A-Share market by investing primarily in SGX FTSE China A50 Index futures.
Fund Features of CHNA:
- Exposure to China A-Shares
- Liquid & efficient alternative to direct investment in China A-Share market
- Cost efficient1
To directly invest in China A-Shares, a foreign investor must apply for a qualified foreign institutional investor (QFII) license with the Chinese government. Should that investor be granted a QFII license, the investor is assigned a quota which could limit their investment amount in China A-Shares. If the quota is reached, the foreign investor must reapply to the Chinese government for additional capacity. There is no assurance that the Chinese government will grant an initial QFII license or increase quota to an existing license.
About the FTSE China A50 Index
The Index is a real-time index that provides exposure to the largest 50 A-Share companies on a market-cap- weighted basis. The Index has a correlation to the broader Chinese domestic equity market of 0.96 as represented by the CSI 300 Index.2
About SGX FTSE China A50 Index Futures
In order to facilitate trading and investment in mainland China by offshore participants, the Singapore Exchange (SGX) launched the SGX FTSE China A50 Index Futures contract in 2010. These futures contracts provide offshore investors an effective and cost-efficient means by which to obtain exposure to the China A-Share market and have experienced significant growth since their inception.
Source: Singapore Exchange (SGX), as of Aug. 31, 2013
1 Since ordinary brokerage commissions apply for each buy and sell transaction, frequent trading activity may increase the cost of ETFs.
2 Source: Bloomberg L.P., from April 2005 through August 2013