Xtrackers Capital Markets
The wall comes down for Chinese A-Shares

China A share

What does the MSCI index inclusion mean for EM investors?

On June 20, 2017, MSCI announced that it will include Chinese A-Shares in the MSCI Emerging Markets Index.

—   MSCI will start with a 0.73% allocation to 222 A-Share stocks in the MSCI Emerging Markets Index beginning in June 2018.

—   Full A-Share inclusion in the MSCI Emerging Markets Index would constitute a 17% weight to Chinese A-Shares and roughly $272 billion in                 capital moving to A-Share markets.

—   Mainland China is under-owned when considering current Emerging Markets (EM) weightings.

MSCI Emerging Markets Index (before and after full inclusion of A-Shares)

MSCI Emerging Markets Index

1 Source: MSCI Research, as of April 2017
2 Source: MSCI Research, as of September 2016

Six reasons China makes sense in the long term

Economic development The Services share of GDP has exceeded 50% in China as the nation moves toward a more developed service-based economy.3
Growth prospects Substantial growth prospects persist as the economy converges to the services economies of the OECD countries.3
Diversification CSI 300 has a 0.188 correlation to the S&P 500 Index and 0.187 to the Russell 2000 Index.4
 
Valuation CSI 300 is trading at a 14.2 forward P/E relative to 18.7 for the S&P 500 Index and 15.3 for the MSCI EAFE Index.4
Infrastructure investment China’s grand One Belt and One Road (OBOR) initiative—a long-term macroscopic program of strategic development for the entire state—could bring more infrastructure projects, benefitting various sectors.
Upgraded GDP forecasts The IMF lifted China growth estimates for the second time this year to 6.7% for 2017, while forecasts remain robust from Goldman and Credit Suisse (6.8%) and J.P. Morgan, UBS and Deutsche Bank (6.7%).4
 

3 Source: World Bank as of 6/30/17.
4 Source: Bloomberg as of 6/30/17.

China's move to a service-based economy

Services share of GDP in China on the rise

Services share of GDP in China on the rise

Source: World Bank as of 6/30/17

Growth potential to converge with service-based OECD*

Growth potential to converge with service-based OECD

Source: World Bank as of 6/1/17

*GDP per capita

Why ASHR?

—   ASHR is the leading product in the space due to its scale, liquidity, options market and broad client base.
—   ASHR was the first physical China A-Share ETF to market and has a long history of navigating the A-Share market.
—   Secondary market liquidity is key when factoring trade entry and exit costs. ASHR has a proven ability to handle stressed market environments,
       including the week of 7/6/15 when ASHR efficiently traded $2.2 billion.
—   During two-week holidays in China, ASHR becomes the market proxy for Chinese A-Shares.
—   ASHR is the only A-Share ETF with a liquid options market.
—   It offers the highest exposure to the 222 A-Shares to be included in the MSCI Emerging Market Index.

MSCI All China IMI Index –Share Class Weights
The Chinese A-Shares market is too large to ignore

Source: MSCI as of 5/31/17.

Xtrackers solutions

Xtrackers delivering China-focused equity ETFs to U.S. investors Symbol Expense ratio
Xtrackers Harvest* CSI 300 China A-Shares ETF ASHR 0.65%
Xtrackers CSI 300 China A-Shares Hedged Equity ETF ASHX 0.70%
Xtrackers Harvest CSI 500 China-A Shares Small Cap ETF ASHS 0.65%
Xtrackers MSCI All China Equity ETF CN 0.63%

*Harvest Global Investments Limited is the subadviser to ASHR and Xtrackers Harvest CSI 500 China A-Shares Small Cap ETF (ASHS). Harvest Global Investments Limited does not provide investment advice to Xtrackers MSCI All China Equity ETF (CN) and Xtrackers CSI 300 China A-Shares Hedged Equity ETF (ASHX).

The Capital Markets Team

 
Luke Oliver
Head of Capital Markets
(212) 454-0509
luke.oliver@db.com
 
Donald Theodate
Capital Markets Specialist
(212) 454-0507
donald.theodate@db.com
       
 
Patrick Galvin
Capital Markets Specialist
(212) 454-0223
patrick-j.galvin@db.com
 
David Stack
Capital Markets Specialist
(212) 454-0175
david.stack@db.com

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