THE iShares FTSE A50 China ETF is the easiest and most liquid way for foreign investors to establish a diversified A50 position and benefit from the Shanghai-Hong Kong Stock Connect (SH-HK Connect) catalyst expected in late October, said OCBC Investment Research in a report issued on Wednesday.
The report highlights three main factors:
- The A50 China Index is attractively valued given a soft landing base case scenario. In addition, 46 per cent of the index components, by index weight, currently trade at a discount to their dual-listed H-shares, which further points to an undervalued A50 China Index.
- SH-HK Connect to be key catalyst: The SH-HK Connect, which will allow, for the first time, institutional and retail foreign investors to purchase Shanghai A-shares through the Hong Kong stock exchange as long as they have an account with an eligible broker, is expected to be a significant catalyst.
- Unleashing pent-up foreign demand can have a re-rating impact on A50 shares: A50 ETF premiums and assets under management growth point to significant pent-up foreign demand, notes the report. Unleashing demand through the SH-HK Connect can increase the A50's average daily volume by 12-29 per cent and have a significant re-rating impact. The SH-HK Connect will also bring in foreign institutional capital which will likely focus on large A50 stocks.
iShares FTSE A50 China Index ETF is an exchange-traded fund established in Hong Kong. The fund's objective is to track the performance of the FTSE A50 China Index, an index comprising the 50 largest A-share companies. The fund invests primarily in China A-share Access Products (CAAPs), but may also invest directly in A-shares via the Manager's Qualified Foreign Institutional Investor (QFII) Investment quota.