5 Best China ETFs in Canada to Buy For April 2024

Are you interested in the market movements of China but don’t know which securities you should add to your portfolio?

It’s no secret that China has become one of the fastest-growing global economies.

The best China ETFs in Canada can help you invest in a basket of Chinese securities without purchasing individual stocks.

By the time you are done reading the list below, I am confident you can make a decision about whether or not China ETFs aligns with your investment goals.

Potential Risks of Investing in China ETFs

Investing in China ETFs comes with a set of unique risks that investors should be well aware of:

1. Political Risk: China’s unique political system, with a blend of communist governance and capitalist economy, can lead to sudden policy shifts affecting businesses.
2. Trade Tensions: As mentioned, trade disputes, especially with the US, can pose a significant risk to Chinese companies and, consequently, to ETFs that hold their stocks.
3. Currency Risk: Currency fluctuations between the Canadian dollar and the Chinese yuan can affect the returns for Canadian investors.
4. Regulatory Risks: The Chinese government can introduce or modify regulations that impact companies. For example, recent crackdowns on tech companies can influence the tech-heavy ETFs.
5. Transparency and Reporting Standards: Chinese companies may not always adhere to the same accounting standards or levels of transparency as North American companies, which can sometimes lead to unexpected results or adjustments.
6. Economic Slowdown: While China has seen tremendous growth, there are concerns about debt levels, property bubbles, and other challenges that could lead to a slowdown.

What is the Best China ETF in Canada?

The best China ETFs in Canada are ETFs tracking publicly listed Chinese companies and give investors access to Chinese markets without the need to directly purchase those stocks. 

They allow Canadian investors a way to geographically diversify their portfolios by owning companies in the world’s second-largest economy.

China has a significant number of state-owned Chinese enterprises. However, there still are Chinese companies whose shares are publicly traded and provide investors with opportunities.

China ETFs trading in Canada own shares of some of the top Chinese companies, including the Alibaba Group Holding Ltd., Ping An Insurance Group Co. of China Ltd., and several others.

Investing in China ETFs carries its fair share of risks, such as trade tensions with the world’s biggest economy and our neighbours, the US. Still, many investors are placing long-term bets on China, and the list of the best China ETFs in Canada can help you get the start you need.

• BlackRock IShares China Index ETF (XCH.TO)
• BMO MSCI China ESG Leaders Index ETF (ZCH.TO)
• Vanguard FTSE Emerging Markets All Cap Index ETF (VEE.TO)
• First Asset CI ICBCCS S&P China 500 Index ETF Unhedged (CHNA-B.TO)

1. BlackRock iShares China Index ETF

BlackRock iShares China Index ETF is one of the best China ETFs in Canada. The ETF seeks to replicate the performance of the FTSE China 50 Index.

This BlackRock iShares ETF effectively provides investors with exposure to 50 of the largest publicly-traded Chinese companies in terms of market cap.

The fund doesn’t directly invest in stocks but rather in other ETFs. Its biggest holding is the iShares China Large-Cap ETF trading on the NYSE. The medium- to high-risk fund is mostly focused on China’s finance sector with a 35.98% weighting on financials.

2. BMO MSCI China ESG Leaders Index ETF

ZCH seeks to replicate the performance, to the extent possible, of the MSCI China ESG Leaders Index.

The index is focused on high ESG rating companies, which means it won’t invest in companies that have significant revenues from more controversial sources such as tobacco, gambling, and alcohol.

The ETF is a medium to high-risk rating and invests mainly in consumer discretionaries (52.2%) and communication services (19.6%)

ESG has been a focal point for many Canadians recently, with many ESG ETFs being started in the last decade.

3. Vanguard FTSE Emerging Markets All Cap Index ETF

The Vanguard FTSE Emerging Markets All Cap Index ETF does not only track the Chinese stock market. 

The objective of the VEE is to track, to the extent possible, the performance of a broad emerging markets index. Currently, the ETF is tracking the FTSE Emerging Markets All Cap China A Inclusion Index.

The fund invests directly or indirectly in large, mid, and small-cap stocks of companies located in emerging markets. It invests primarily in the US-domiciled Vanguard FTSE Emerging Markets ETF.

The ETF has a lower MER compared to most of the other ETFs listed in the guide, making it an attractive option to consider. 

4. First Asset CI ICBCCS S&P China 500 Index ETF (Unhedged)

CHNA.B seeks to track, to the extent possible, the price and yield performance of the S&P China 500 Index. The underlying ETF selects the largest 500 companies from the S&P broader S&P Total China BMI Index.

The Index represents the entire investment universe of Chinese companies that qualify for the minimum market cap and trading volume thresholds.

Most other ETFs in the list of the best China ETFs in Canada have a more focused approach toward investing in Chinese companies. However, CHNA.B provides investors with exposure to a broad range of equity securities in Chinese companies.

5. Horizons China High Dividend Yield Index ETF

Note that this ETF has been discontinued by Horizons, most likely due to very low assets under management. I left this in the list though, because I wanted to highlight an important risk to take into account. The less popular an ETF is, the more likely the fund could potentially be closed. This could have some bad tax consequences in non-registered accounts because if you are forced to sell at a gain, you will have to pay taxes.

Horizons China High Dividend Yield Index ETF fundamentally focuses on replicating, to the extent possible, the performance of the Hang Seng High Dividend Yield Index (the “Underlying Index”), net of expenses. The ETF invests primarily in the Underlying ETF.

The underlying index is designed to measure the performance of Hong Kong-listed equity securities that are primarily characterized by their high yields. 

Some of the ETF’s top holdings include Agile Group at 4.12%, Vtech Holdings at 3.41%, and Xinyi Glass at 3.34%. The ETF might be more suitable for investors chasing a higher yield for returns instead of focusing solely on capital gains.

Which international ETFs in Canada have significant holdings in China?

Vanguard FTSE Emerging Markets All Cap Index ETF (VEE.TO) is one example. While it’s an emerging market ETF and not China-specific, it currently tracks the FTSE Emerging Markets All Cap China A Inclusion Index, meaning it has considerable exposure to Chinese stocks.

How to Buy China ETFs in Canada

The cheapest way to buy ETFs is from discount brokers. My top choices in Canada are:

To learn more, check out my full breakdown of the best trading platforms in Canada.

Conclusion

The best China ETFs in Canada can get you more convenient exposure to Chinese markets without letting you make the effort of researching and choosing individual stocks.

Additionally, not all China ETFs in Canada are made the same. Each ETF offers a basket of companies that you can invest in based on your investment goals.

You can consider investing in these China ETFs depending on what your investment goals are. If you want a simple solution, consider investing in an all-in-one ETF.