Before the beginning of the well-known events, investors were divided into those who worked with the Russian securities market and those who, due to various circumstances, preferred the American, European, and Asian markets. After the sanctions and blocking of assets, the vast majority of investors had to focus their attention on the domestic economy and domestic business. Yes, there were those who bought shares of Netflix or Amazon, not shying away from buying shares of Gazprom, Magnit, etc., but each economy, each index has its own characteristics, without understanding which it is impossible to make the right decision. And here it is not about how and where to buy, what charts, statistics, commissions, but about whether it is worth investing your own money in a distant, foreign and incomprehensible economy for an ordinary investor.

To date, SPB Exchange has implemented trading in several yuan ETFs of Hong Kong and Chinese companies, including for unqualified investors. So if your portfolio includes ETFs, you’re interested in Asian markets, or you’re just learning something new, let’s find out.

These funds have a list of essential nuances that are important to consider when buying. We will talk about this at the end of the article.

1) Tracker Fund of Hong Kong: the oldest ETF on the Hong Kong exchange, has been operating since 1999 and tracks the reference index of Hong Kong – the Hang Seng Index. It includes 76 companies, including Alibaba, Tencent, HSBC, Lenovo, Geely, Xiaomi. The commission is 0.08% per annum.

Hang Seng is the most important stock index of the Hong Kong Stock Exchange. It includes 80 Hong Kong joint-stock companies, which account for 65% of the total capitalization of the Hong Kong Stock Exchange.

Fund ticker 82800*

*Chinese assets have digital tickers, this is a feature of the exchange

2) Hang Seng China Enterprises Index ETF: Mainland Chinese companies are listed on the Hong Kong Stock Exchange. It includes 50 companies, including Alibaba, Tencent, China Construction Bank, China Mobile. The commission is 0.67% per annum.

The ticker of the fund is 82828

3) CSOP Hang Seng TECH Index ETF: the fund launched in 2020 and combines large Chinese technology companies. It includes 50 companies, including Alibaba, Xiaomi, JD com, Xpeng, NIO. The commission is 1.05% per annum.

The ticker of the fund is 3033

Traded in Hong Kong Dollars only.

4) iShares Hang Seng TECH ETF HKD: just like the ETF number 3, includes large Chinese technology companies, but here there are fewer of them – 30. And unlike the previous funds, it is managed by the American BlackRock. The commission is 0.25% per annum.

Fund ticker is 3067

Traded in Hong Kong dollars.

5) ChinaAMC CSI 300 Index ETF: An ETF composed of companies in the China CSI 300 Index traded on the Shanghai and Shenzhen Stock Exchanges. That is, these are companies from mainland China. It includes, as you can easily guess, 300 Chinese companies, among them little known to the Russian investor. The largest shares in the fund are held by KWEICHOW MOUTAI, CATL and CHINA MERCHANTS BANK, Ping An. Commission – 0.70% per annum.

The ticker of the fund is 83188

6) CSOP FTSE China A50 ETF. The index – FTSE China A50 – is similar to fund number 5, but there are only 50 companies. Also mainland China without companies in Hong Kong. Management fee 1.14%

The ticker of the fund is 82822 in RMB

2822 – in Hong Kong dollars

7) iShares FTSE China A50 ETF: duplicates the fund at number 6 with a key distinction; just like the previous ETF, it is managed by BlackRock. The commission is 0.35% per annum.

The ticker of the fund is 82823 in RMB

2823 – in Hong Kong dollars

8) iShares Core MSCI Asia ex Japan ETF: also a fund managed by BlackRock, but it includes 1,100 companies from almost the entire Asian region, excluding Japan. Here you can find Chinese, Hong Kong, Indian, South Korean, Taiwanese, Malaysian and Thai companies. Tencent, Samsung, Taiwan Semiconductor, Alibaba and Aia Group are among the largest in terms of participation. The commission is 0.28% per annum.

The ticker of the fund is 83010 in yuan

3010 in Hong Kong dollars

Regarding dividends: funds managed by BlackRock do not pay them, others mostly pay properly. At the same time, almost all of the ETFs described above are in a long-term negative, the same Tracker Fund of Hong Kong – in fact, the main fund of the Asian region – has lost 36% over the past five years. ChinaAMC CSI 300 Index ETF was the best performer with a result of +5% over the past three years.

What we have as a result and which funds should be considered in your portfolio:

Two funds in the technology sector, which is considered risky.

CSOP Hang Seng TECH Index ETF – very expensive in fees (1.05%) – completely unprofitable.

iShares Hang Seng TECH ETF HKD – there are fewer companies, but the commission is much lower (0.25%). This fund can strengthen a portfolio, but I would not add it more than 3-5% of the total amount of the portfolio.

Funds from the CSOP company are the most expensive, I do not recommend them for investments, cheaper analogues.

Option 1 – take the Tracker Fund of Hong Kong (82800) and the iShares FTSE China A50 ETF (82823), or the broader ChinaAMC CSI 300 Index ETF (83188).

Option 2 – use one fund from BlackRock for all Asian markets, except for Japan, which has other markets of interest to us, for example, India.

This option covers almost all of Asia, led by China:

An important note about storage, because many will say: “Oh no, we’ve had our fill of funds and blocked money.”

SPB Exchange assures that storage and settlement of Hong Kong ETFs will be carried out using a chain of friendly international depositories. As for funds with Hong Kong and Chinese managers, the risk of blocking is really small, the main thing is that “friendly” countries do not suddenly move to the category of “unfriendly”.

Regarding the nuances associated with the acquisition of these funds:

• Very low liquidity! Do not place a market order, buy at the limit. Due to low liquidity, the price can jump up and down very much. Check that there is Market Maker in the glass (it is visible in larger volumes).

• Not all brokers have it yet. For example, there are ETFs in Finland, but RMB funds are not available for trading. This is a technical delay of the broker, which they promise to fix soon (trading is not available on July 24).

• You will need to pass the test to purchase.

• You will have to report to the tax office and pay taxes on dividends. A foreign dividend broker is not a tax agent.

• Stock trading takes place in Hong Kong from 8 a.m. to 11 a.m., and at the St. Petersburg Stock Exchange from 8 a.m. to 6 p.m. Moscow time.

Now directly about investments in the Chinese economy.

Everything is difficult with China. One of the peculiarities of its economy is that, despite the general growth, the stock market has been falling for the past five years. This is due to the significant infusion of funds by the state into certain sectors and regions. Consequently, the threat of deflation loomed over the Celestial Empire in connection with the high federal debt of the regions and individual companies, which are also represented in the mainland indices. In addition, China has still not recovered from the Covid-19 pandemic, and the general weakness of the global economy led to a 12% decrease in exports and a 6% decrease in imports in June. In general, there is something to think about.

Speaking of Hong Kong, the question is more about the big players that form the indices and the funds described above. Alibaba, Tencent and others, despite recent difficulties with management issues, post-covid stories, etc., show their viability and clear opportunities for growth. But when will investors be able to see with their own eyes the results of their efforts?

If we look at China from the point of view of economic cycles, then, according to Fidelity’s analysis, the economy is already in recession, and we remember that after a fall there is always growth.

Strictly speaking, all these conversations, which include the discussion of such global issues, are circles on the water. China’s economy and Hong Kong’s stock market will not collapse tomorrow or in 10 years. Whether the new tools will be useful for your portfolio is up to you, but they will definitely be a breath of fresh air for many investors.

The table with the list of ETFs can be viewed at the link.