ETFs to Prosper from China's New Growth Markets

LOW COST FUNDS: As China embraces a new investment led economic plan, the European ETF market needs to provide more tailored products to capture the growth industries

Monika Dutt 23 November, 2015 | 2:57PM

This article is part of Morningstar’s Guide to Investing in Asia where we navigate the potential risks, for the chance of fantastic rewards from across the continent.

In China, the economy is transitioning from an export-led growth model to a consumption-driven one. According to China’s Premier Li urbanisation will narrow the income gap between rural and urban residents, and urban household-income will increase at least twofold by 2022. All of these changes create investment opportunities; savvy investors may well be eyeing funds targeting China’s fastest-growing sectors including retail, e-commerce, internet and mobile, while limiting their exposure to heavy industries.

The problem is the European ETF offering exposed to China’s growing businesses is paltry. A host of products track flagship market capitalisation indices, but most of these are heavily exposed to financials. The Hang Seng China Enterprise Index (HSCEI) allocates 70% of its total value to the financial sector, while the FTSE China 50 and MSCI China assign a 52% and 41% weighting to it, respectively.

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About Author

Monika Dutt  is a Passive Strategies Research Analyst for Morningstar Europe

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