Value Partners Asset Management Malaysia has launched what it describes as the world’s first-ever A-share exchange-traded fund that tracks the performance of the Dow Jones Islamic Market China A-Shares 100 Index.

The Shariah China A-Shares 100 ETF adopts a full replication strategy, meaning it will hold every constituent of the benchmark Dow Jones index, with substantially the same weightings. The product is Value Partners Malaysia’s first ETF to be listed on the local bourse.

The ETF provides investors exposure to Shariah-compliant stocks within the China A-shares equity universe. With the quantitative criteria adopted by the benchmark index, the Shariah China A-Shares ETF provides investors with exposure to China’s new economy, allowing them to participate in the country’s changing dynamics and positive growth trends as it moves towards becoming a consumption- and services-led economy. China’s new economy includes companies in the technology, consumption, healthcare and 5G space.

The Shariah methodology adopted for the ETF requires companies to be screened on two levels. The first is a sector-based screen, where companies in the sin sectors (such as alcohol, tobacco, and gambling), pork-related products, conventional financial services, and weapons and defense, are excluded.  The second is a quantitative screening of liquidity and total debt, based on specified and approved metrics. Because of these screens, Shariah-compliant companies usually have strong business fundamentals supported by healthy balance sheets, Value Partners says.

To meet its investment objective, the ETF can invest up to 100% of its net asset value in authorized securities, with an option to invest a maximum of 10% in Islamic collective investment schemes, Islamic money market instruments and/or Islamic deposits.

“Our new Shariah China A-Shares ETF is a unique tool for Malaysian investors to capture opportunities in China’s new economy within Shariah principles,” says Durraini Baharuddin, managing director of Value Partners Malaysia.

With the recent inclusion of China A-shares into global indices, the expected increase of foreign participation in the market may also lead to upward asset revaluation.  

Kamal Mustadza, fund manager at the company, notes: “We have a positive outlook on foreign capital inflows into Chinese markets and continue to remain optimistic. China's continued efforts of developing and improving market accessibility over the years have made the market too big for investors to ignore.”

The Dow Jones Islamic Market China A-Shares 100 Index outperformed the CSI 300 Index by delivering cumulative returns (in Malaysian ringgit) of +49.2%, +80.7% and +118.7% over the 1-, 3- and 5-year periods, respectively, compared wth the CSI 300 Index’s +34.4%, +66.2% and +94.7% for the same periods, as of June 29 2021. The top three sectors of the benchmark index comprise of industrials (31.5%), healthcare (26.3%) and consumer goods (16.5%).

The Shariah China A-Shares 100 ETF will be listed on Bursa Malaysia on July 28. It will have an initial issue price of 2 ringgit (47.7 US cents) per unit, with a board lot size of 100 units.