Chinese lanterns hanging from the ceiling.

China and the world

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Historically, investors outside of China have struggled to access the country’s full range of investment opportunities. But this story is changing as policymakers seek to liberalize Chinese stock and bond markets to allow greater access to onshore Chinese investments.

Risk: Investments in China are subject to certain additional risks, particularly regarding the ability to deal in equity securities in China due to issues relating to liquidity and the repatriation of capital. As a result, the Fund may choose to gain exposure to Chinese equities indirectly and may be unable to gain full exposure to Chinese equity markets.

 

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A Market Opportunity: China

China is home to the second largest equity and bond markets.

2Bloomberg, December 2020

China continues to grow, now the world’s second-largest economy gaining fast to rival the United States. In the past investors outside of China have struggled to access the country’s full range of growth opportunities. Even now foreign ownership accounts for just 3% of Chinese assets1. But this is changing rapidly and the cost of ignoring this opportunity might prove too high, especially over the longer term.

1Source: PBoC, March 2020, includes publicly-listed Chinese equity securities denominated in RMB, incorporated in China and onshore bond issuance, including both government and corporate debt.

The role of China in your portfolio

Illustrative graph showing how BlackRock provides access to a range of investment opportunities across regions.

For illustrative purposes only.

It can be tempting to see the prospect of ongoing tensions and the resulting increase in localised political pressure as a reason not to hold any Chinese exposure in portfolios. But from an investment perspective, BlackRock believe this could be a costly decision for investors. Despite near-term challenges it should be considered that China will continue to become an increasingly key engine of global growth, further, an allocation to China is a crucial opportunity for portfolio diversification particularly given Western economies are facing the potential of a larger state role in corporate activity. We believe a neutral starting allocation to Chinese assets should be significantly higher than where most international investors currently are

Risk: Diversification and asset allocation may not fully protect you from market risk.

Fixed income in China

Risk: Two main risks related to fixed income investing are interest rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in the market value of bonds. Credit risk refers to the possibility that the issuer of the bond will not be able to repay the principal and make interest payments.

Although various reforms, including the introduction of Bond Connect, have simplified access to the onshore Chinese bond markets, foreign investors remain only a small portion of the market. China’s bond market has the potential to offer higher yields than many developed market bonds while enabling diversification across the credit and duration spectrum.

Risk: BlackRock has not considered the suitability of this investment against your individual needs and risk tolerance. To ensure you understand whether our product is suitable, please read the relevant Key Investor Information Document and/or Prospectus.

 


Our full China Fixed Income range

China Bond Fund
A sub-fund of BlackRock Global Funds

Illustrative graph showing Chinese market composition.

For illustrative purposes only.

Source: Wind, September 2020

Policy Bank bonds: Wholly state owned by the central government and serving policy functions.

Local Government: Only provincial level administrative regions are permitted to issue.

The BGF China Bond Fund invests in onshore and offshore Chinese debt through a flexible asset allocation strategy leveraging top-down macroeconomic and bottom-up credit views. The Fund invests globally at least 70% of its total assets in fixed income securities issued or distributed either inside or outside of the People’s Republic of China (PRC) and denominated in Renminbi or other non Chinese domestic currencies.

CNYB - iShares China CNY Bond UCITS ETF

Illustrative graph showing the China Bond market yields as a percentage of market value.

For illustrative purposes only.

Source: PBoC Wind, June 2020.

Risk: Diversification and asset allocation may not fully protect you from market risk.

iShares China CNY Bond UCITS ETF provides broad exposure to CNY denominated investment grade bonds of Chinese treasury and policy banks. The ETF can be used to provide direct exposure to the Chinese bond markets to help build a diversified, global fixed income portfolio.

Chinese equities

As access by foreign investors to the Shanghai and Shenzhen exchanges becomes more open, foreign investors see a broader range of ways to build a China equity allocation. China’s array of equity share classes, although often highlighted as a point of confusion, also provide a breadth of investment opportunities for foreign investors to capitalize on.

Risk: The value of equities and equity-related securities can be affected by daily stock market movements. Other influential factors include political, economic news, company earnings and significant corporate events.

Illustrative graph showing the Chinese benchmark sector performance

Source: Bloomberg as at December 2020. For illustrative purposes only.

Risk: Diversification and asset allocation may not fully protect you from market risk.

Growing weight in global indices
Improving access through Hong Kong Stock Connect Program
Complementary exposures between offshore and onshore listings

Our full China Equity range

Risk: BlackRock has not considered the suitability of this investment against your individual needs and risk tolerance. To ensure you understand whether our product is suitable, please read the relevant Key Investor Information Document and/or Prospectus.

 


 

Broad China Exposure
- Diversified positioning across offshore and A-share markets

China Fund
A sub-fund of BlackRock Global Funds

Illustrative graph showing the percentage of domestic A-shares.

Source: BlackRock, September 2020. Subject to change. For illustrative purposes only.

The BGF China Fund is an offshore China focused fundamental equity strategy with the flexibility to allocate up to 20% to onshore A-Shares. The fund invests at least 70% of its total assets in the shares of companies domiciled in, or the main business of which is in, the People’s Republic of China.

China Flexible Equity Fund
A sub-fund of BlackRock Global Funds

Illustrative graph showcasing the percentage of on-shore vs. off-shore exposure in the benchmark.

Benchmarked against the MSCI China All-Share Index providing flexible exposure between onshore and offshore markets

Source: MSCI, December 2020. Subject to change. For illustrative purposes only.

The BGF China Flexible Equity Fund has a flexible allocation between onshore and offshore Chinese equity markets focused on high conviction ideas. The Fund invests at least 70% of its total assets in the shares of companies domiciled in, or the main business of which is in, the People’s Republic of China.

ICHN - iShares MSCI China UCITS ETF

Illustrative graph showcasing the approximate coverage of the Chinese stock market in the fund (85%).

Source: BlackRock, September 2020. Subject to change. For illustrative purposes only.

iShares MSCI China UCITS ETF provides broad exposure to offshore & onshore stocks and covers approximately 85% of the Chinese stock market. The ETF can be used to provide direct exposure to the Chinese stock markets to build a diversified, global equity portfolio.

Domestic China A-share Exposure
- Local markets / Uncorrelated Alpha

Systematic China A-Share Opportunities Fund

Illustrative graph showing that the fund is made up of 100% onshore A-Shares.

Source: BlackRock, September 2020. Subject to change. For illustrative purposes only.

A sub-fund of BlackRock Global Funds

The BGF Systematic China A-Share Opportunities Fund invests only in onshore Chinese equity markets (known as “A Shares”). The Fund is a systematic equity strategy, leveraging big data and signals with the aim to generate alpha in addition to traditional insights and is benchmarked against the MSCI China A Onshore Index.

China A-Share Fund
A sub-fund of BlackRock Global Funds

Illustrative graph showing the allocation in the Chinese equity market. 70% onshore vs. 30% offshore.

Source: BlackRock, September 2020. Subject to change. For illustrative purposes only.

The BGF China A-Share Fund uses a Fundamental approach to invest and extract alpha from onshore Chinese equity markets (known as “A-Shares”). The Fund is benchmarked to the CSI 300 Index.

CNYA - iShares MSCI China A UCITS ETF

Illustrative graph showing that the fund is made up of 60% A-Shares in the Chinese stock market.

Source: BlackRock, September 2020. Subject to change. For illustrative purposes only.

iShares MSCI China A ETF aims to provide a market cap-weighted exposure of mainland traded Chinese A-Shares. The ETF provides exposure to the locally listed portion of the Chinese stock market and is designed to reflect the A-shares included in the MSCI EM Index. A-Shares make up around 60% of Chinese equities, but have historically been largely inaccessible to international investors.

Offshore China Exposure

FXC - iShares China Large- Cap UCITS ETF

Illustrative graph showing that the fund is made up of 50 of the largest listed companies.

Source: BlackRock, September 2020. Subject to change. For illustrative purposes only.

iShares China Large Cap UCITS ETF provides exposure to 50 of the largest offshore Chinese companies listed on the Hong Kong Stock Exchange. The ETF provides single country exposure and has high allocations to the Financials and Communication sectors.