New fund helps Europe's investors buy into China

Exchange traded fund allows people to buy Chinese stocks otherwise out of reach

Europe's financial markets took another step to help local investors buy into the opportunities offered by China's economic growth with the launch in Frankfurt on Monday of a new financial instrument covering a range of Chinese stocks.

The new exchange traded fund (ETF) offers returns on a basket of 500 major Chinese stocks listed both in China and overseas. They include household names, such as the New York Stock Exchange-listed Alibaba and Shanghai Stock Exchange's Ping An Insurance.

Known as the ICBCCS WisdomTree S&P China 500 UCITS ETF, the fund buys shares in Chinese companies that may not otherwise be available to most European investors because of regulatory barriers, and distributes the profits to holders of the ETF.

The launch highlights European investors' growing confidence in China's stock market and signals a recovery from uncertainties prompted by its downturn last summer. It also underlines the growing enthusiasm of overseas stock exchanges to work with China.

Just last week, the London Stock Exchange announced it was moving forward with a feasibility study on connecting the LSE with the Shanghai Stock Exchange.

Analysts expect the new ETF to be popular among European investors who do not currently have licenses to buy Chinese stocks directly. China's stock market remains highly restricted toward foreign access.

The ETF was jointly developed by the China-backed ICBC Credit Suisse Asset Management and the London-based investment firm WisdomTree Europe.

"Market access to Chinese equities has long been an issue for investors and the creation of an ETF brings substantial benefits," said Nizam Hamid, ETF strategist at WisdomTree Europe.

Hamid said accessing Chinese stocks' growth via the ETF would avoid operational and administrative burdens. The ETF is a "transparent and liquid single product", he said.

The new ETF is the 17th to trade on the China Europe International Exchange (CEINEX) platform. CEINEX is a joint venture between Deutsche Borse, the Shanghai Stock Exchange, and the China Financial Futures Exchange.

Zhu Junjun, director and head of product development at CEINEX, said the new ETF is significant in offering current clients more investment possibilities, and unique in covering a broad spectrum of companies, including such diverse companies as those involved in financial services and technology.

Robert Davis, a senior portfolio manager at Brussels-based NN Investment Partners, said, meanwhile, that investing in Chinese stocks through Shanghai Hong Kong Stock Connect was also a growing trend.

In addition to ETFs, which track a large number of stocks, Davis said his team prefers to select specific stocks in China in pursuit of better returns.