New China ETF in Europe to Focus on Onshore-Offshore Price Gap

  • Deutsche Asset Management fund to invest in 50 biggest stocks
  • Starts five months after similar ETF introduced in U.S.

The provider of the largest U.S.-listed exchange-traded fund investing in China’s mainland shares is starting an ETF in Europe that intends to profit from the price difference between stocks that sell both onshore and in Hong Kong.

The Deutsche Asset Management fund launched Wednesday tracks the FTSE China A-H 50 Index, which is comprised of the 50 largest Chinese companies that trade on both the mainland and in Hong Kong but only includes those that sell for the lowest price. On average, the so-called A-shares of dual-listed companies are trading at a 34 percent premium to their counterparts in the former British colony, data compiled by Bloomberg show.

The x-trackers Harvest FTSE China A-H 50 Index UCITS ETF “is a straight forward way for investors to maintain exposure to the ‘cheaper’ share class of dual-listed companies,” Marco Montanari, the company’s head of passive asset management for the Asia-Pacific region, said in a statement. “And if the gap does close over time then those investors that have automatically had ongoing exposure to the lower-priced share classes will benefit.”

European Trading

The fund, which Deutsche Asset Management said is the first of its kind in Europe, trades on the London Stock Exchange and the Deutsche Borse under the ticker AH50. Its introduction comes five months after CSOP Asset Management Ltd, which has the world’s biggest fixed-income exchange-traded fund investing in onshore yuan-denominated bonds, started a similar ETF in the U.S.

Both are intended to profit from price gaps between dual-listed stocks as the country limits the amount of A-shares foreign asset managers can buy in order to control the amount of investment in the country from overseas.

“It’s a very reasonable and rational process to say, ‘If all else is equal except for the price and I can buy this company at a discount,’ ” Mat Lystra, senior research analyst at FTSE Russell, said by phone. “That is the philosophy underlying the creation of the index and an interest in creating an ETF on it.”

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