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ETFs 101

An Asset Allocators Guide To The Alphabet Soup of Chinese Share Classes

The proliferation of Exchange Traded Funds provides investors with a variety of China-focused investment options. How these pieces fit into the broader framework of asset allocation leaves room for improvement. This piece attempts to provide clarity on the variety of Chinese share classes that are available today. More importantly it articulates how these pieces fit within one’s exposure to emerging and developing markets.

Chinese Share Class Quick Overview:

Share ClassA ShareB ShareH ShareRed ChipN ShareS ShareP ShareHong Kong
DescriptionChinese companies trading on the Shanghai, Shenzhen Stock Exchanges. Trading in RMB.Chinese companies trading on the Shanghai, Shenzhen Stock Exchanges. Trading in USD or HKDChinese companies incorporated in mainland China trading on the Hong Kong Stock ExchangeChinese state owned enterprises incorporated in Hong Kong trading on the Hong Kong Stock ExchangeChinese companies trading on the New York Stock Exchange and NasdaqChinese companies trading on the Singapore ExchangeChinese companies incorporated outside of China and Hong Kong trading on the Hong Kong Stock ExchangeHong Kong companies incorporated in Hong Kong and trading on the Hong Kong Stock Exchange
MSCI Emerging Markets   X X X     X  
MSCI EAFE               X

MSCI Emerging Markets

B Shares
Description:Chinese companies listed on the Shanghai and Shenzhen Stock Exchanges
Indices:B shares are included in indices like the MSCI Emerging Markets
Currency:Shares on the Shanghai are denominated in US dollars. Shares on the Shenzhen are denominated in Hong Kong dollars
Access:Readily available
IndexMSCI China B Index
Total Market Capitalization:U.S. $6.2 Billion
Number of Stocks:3
H Shares
Description:Chinese companies incorporated in mainland China and listed on the Hong Kong Stock Exchange
Indices:B shares are included in indices like the MSCI Emerging Markets
Currency:Hong Kong Dollars
Access:Readily available
IndexMSCI China H Index
Total Market Capitalization:U.S. $605.5 Billion
Number of Stocks:68
Red Chip
Description:Shares are Chinese state owned enterprises incorporated predominantly in Hong Kong that do the majority of their business in mainland China. Shares are listed on the Hong Kong Stock Exchange.
Indices:Red Chips are included in developing market indices like the MSCI Emerging Markets
Currency:Hong Kong Dollars
Access:Readily available
IndexMSCI China Red Chip Index
Total Market Capitalization:U.S. $ 514.1 Billion
Number of Stocks:32
P Chips
Description:Chinese companies incorporated outside of China and Hong Kong though predominantly traded in Hong Kong
Indices:P Chips are included in developing market indices like the MSCI Emerging Markets
Currency:Hong Kong Dollars
Access:Readily available
IndexMSCI China P Index
Total Market Capitalization:U.S. $262.8 Billion
Number of Stocks:36

MSCI EAFE

Hong Kong Stocks
Description:Companies incorporated in Hong Kong and listed on the Hong Kong Stock Exchange
Indices:Companies that derive the majority of their revenue in Hong Kong are included in MSCI EAFE
Currency:Hong Kong Dollars
Access:Readily available
IndexMSCI Hong Kong
Total Market Capitalization:U.S. $655 Billion
Number of Stocks:41

Not included in Developed or Emerging Market indices.

A Shares
Description:Chinese companies listed on the Shanghai and Shenzhen Stock Exchanges
Indices:A shares are excluded from indices like MSCI Emerging Markets due to the limited access available to non-Chinese investors
Currency:Chinese Yuan
Access:Restricted to Chinese investors though select investors have limited access through Qualified Foreign Institutional Investor program
IndexMSCI China A Index
Total Market Capitalization:U.S. $2.8 Trillion
Number of Stocks:500
N Shares
Description:Chinese companies on the New York Stock Exchange and Nasdaq
Indices:N Shares are not included in broad benchmarks like MSCI EAFE nor EM
Currency:U.S. Dollars
Access:Readily available
IndexN/A
Total Market Capitalization:U.S. $350 Billion
Number of Stocks:17
S Shares
Description:Chinese companies listed on the Singapore Exchange
Indices:S Shares are not included in broad benchmarks like MSCI EAFE nor EM
Currency:Singapore Dollars
Access:Readily available
IndexN/A
Total Market Capitalization:U.S. $97 Billion
Number of Stocks:20