• The Phillip-China Universal MSCI China A 50 Connect ETF has debuted on SGX, offering investors a cash efficient portfolio product to invest into leading companies listed in onshore China. At launch size of S$69 million, it is the largest ETF tracks the MSCI China A 50 Connect Index across APAC exchanges outside of China.
   
• The Index comprises 50 A-shares that are accessible by the Underlying Fund through the Northbound Stock Connect channel. The Index also maintains a 13% ROE, with Index gains since early Feb driven by the Index stocks in the top quintile of highest ROE. In early Feb, the CSRC began rolling out significant market stabilisation measures.
   
• The Phillip-China Universal MSCI China A 50 Connect ETF takes the number of ETFs that track China equities to 10, with a combined AUM of more than S$2.1 billion. These ETFs cover a broad span of China indices, that also provide thematic and sectoral exposure, enabling for tactical investment strategies for both broad China exposure and specific sectors.
   

MSCI China A 50 Connect Index

Since early February, the MSCI China A 50 Connect Index has rallied 16%, trimming its decline since the end of 2022 to 12%. The initial catalyst for the turn in sentiment was the China Securities Regulatory Commission (CSRC) announcing multiple market stabilisation measures over three consecutive days, followed by Wu Qing’s promotion to CSRC chairman on 7 Feb. While the majority of MSCI China A 50 Connect Index constituents have lodged gains since the 2 Feb close, there has been a discernable trend in constituents with higher productivity ratios outpacing those with lower productivity ratios. The top quintile of Index constituents by highest Return on Equity (ROE) on average generated three times the gains of the quintile with the lowest ROE from the 2 Feb close to 18 Mar.

ROE is a measure of how efficiently a stock has used its shareholder equity to generate profits, with a higher ROE indicating the stock has been more efficient in converting equity into profit. From a Sector perspective, Information Technology was the strongest Sector within the Index over the past 10 weeks, with Real Estate the laggard Sector. The comparatively more steady upward momentum of the MSCI China A 50 Connect Index after the CNY market holidays, has seen the MSCI China A 50 Connect Index saw the Index print a 5-month high last week. The CSRC has also unveiled more measures to support market stability measures through March.  

ETF Structure

The Phillip-China Universal MSCI China A 50 Connect ETF is a Feeder Fund, and invests at least 90% of its Net Asset Value (NAV) in the CUAM MSCI China A 50 Connect ETF which is listed on the Shanghai Stock Exchange and tracking MSCI China A 50 Connect Index by investing in stocks that are constituents of the Index.

At launch size of S$69 million, it is the largest ETF tracks the MSCI China A 50 Connect Index across APAC exchanges outside of China.  The Master Fund has a management fee of 0.50% while the Feeder Fund has a management fee of 0.01%, bringing the total management fee of the fund to 0.51%.

The five biggest index constituents that represent ~30% of the MSCI China A 50 Connect Index include Kweichou Moutai (~8%), Contemporary Amperex Technology Co (~6%), Zijin Mining (~6%), Wanhua Chemical (~5%) and Luxshare Precision (~5%).

The Phillip-China Universal MSCI China A 50 Connect ETF takes the number of ETFs that track China equities to 10, with a combined AUM of more than S$2.1 billion. These ETFs cover a broad span of China Indices, that also provide thematic and sectoral exposure, enabling for tactical investment strategies for both broad China exposure and specific sectors.

The 10 ETFs are tabled below.

Source: SGX, all data as of 18 March 2024

In the first half of March-2024, the technology and growth focused index outpaced the broad-based China indices with UOBAM Ping An ChiNext ETF generating 6% of returns. The next best performers in the first half of March included CSOP CSI STAR and ChiNext 50 Index ETF and the Lion-OCBC Securities Hang Seng TECH ETF (HSTECH) which both averaged 5% returns. The HSTECH was also the most traded ETF in 2023 with average day turnover of S$3.5 million. The ChiNext and STAR boards focuses on innovative Chinese growth companies and startups. The trio, in addition to the NikkoAM-STC MSCI China Electric Vehicle and Future Mobility ETF, also posted double digit percentage returns in February.

China’s Real Estate Sector

As noted above, the Information Technology Sector was the strongest Sector within MSCI China A 50 Connect Index over the past 10 weeks, with Real Estate the lagging sector. Back in Feb, the IMF relayed that the China Real Estate Sector slowdown is considered a medium-term development, and authorities have been prudently concentrating on mitigating risks to help the property sector transition to a more appropriate and sustainable size. Based on multiple scenarios for the evolution of fundamental demand as well as the impact of the overhang of inventories and other supply-side pressures, the IMF’s analysis suggests, real estate investment would likely fall 30 percent to 60 percent below its 2022 level, rebounding only very gradually. The analysis added that this was comparable to major housing downturns in other countries with similarly sizable slowdowns in starts, and a shorter and smoother transition for the real estate sector is achievable, however, requires a handful of key structural initiatives.

NPC & New Productive Forces

On the economic front, at the 2024 National People’s Congress (NPC), policymakers again signaled they would be targeting 5% GDP growth, with the deficit-to-GDP ratio at 3%. Comparatively more fresh developments have been the issuance of ultra-long special treasury bonds to support strategic sectors and a policy tilt to modernising its industrial base with ‘new quality productive forces’.

According to State Media, the National Development and Reform Commission (NDRC) maintain that the economic focus of 1 trillion yuan (US$140 billion) in ultra-long special treasury bonds “over each of the next several years” will be on supporting “science and technology innovation, integrated urban-rural development, coordinated regional development, food and energy security, and high-quality population growth”. State Media also reported that the innovation-driven focus on ‘new productive forces’ will include industrial and supply chain improvements and upgrades, and the “cultivation of emerging industries and future-oriented industries. Such industries include hydrogen power, new materials, biomanufacturing, commercial spaceflight, quantum technology and life sciences”. Onshore state media added that “Innovative development of the digital economy will be promoted, with an Artificial Intelligence Plus initiative to be launched”. On the hi-tech front, “new quality productive forces along with Sci-tech innovation will continue to improve the competitiveness of China's industry and supply chains, particularly in high-end and booming industries such as new energy and the digital sector, while breaking new grounds in manufacturing of advanced chips”.

Further Resources and Research

• ETF Market Updates
• ETF Screener
• ETF Resources
• Monthly Highlights of China-focused ETFs - February 2024
• SIP Education

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