While Tesla is possibly the best-known Electric Vehicle (EV) company, there are many more players in the EV industry. The global EV industry is estimated to be worth US$250 billion in 2020 and projected to grow to US$800 billion.
In Singapore, the government is championing support for EVs as clean-energy vehicle options to reduce emissions as part of Singapore Green Plan 2030. $30 million over 5 years have been set aside in Budget 2021 for EV-related initiatives.
For Singapore investors looking to capitalise on this growth sector, NikkoAM is introducing an ETF that specifically focuses on the Electric Vehicles and Future Mobility (EVFM) in China. Here’s what investors need to know before investing into the NikkoAM-StraitsTrading MSCI China EVFM ETF.
#1 Why Invest In China EVFM
While Tesla is currently the top-selling sedan in Singapore (according to LTA’s November 2021 statistics), it is far from the only EV player globally. In fact, China is a market mover in the EV industry in terms of both demand and supply.
Sales of EVs have surged in 2021 in China. BYD sold triple the number of EVs, 71,099 in September 2021 compared to 19,881 in 2020 and XPeng reported almost twice the number of EV shipments. According to Fitch Ratings, the proportion of EV sales of total passenger vehicle sales in China rose from 13.2% to 18.6% 2Q21. China is predicted to contribute over 50% of new global EV sales by 2025. Additionally, China has also imposed a mandate on automakers to make EVs account for 40% of all new car sales by 2030.
China dominates the world’s production of lithium-ion battery which is a key component of EV manufacturing. China controls 80% of the global raw material refining, 77% of the global cell capacity and 60% of global component manufacturing, according to BloombergNEF.
These demand and supply factors make China an attractive EV market which is why NikkoAM’s new NikkoAM-StraitsTrading MSCI China EVFM ETF is geographically focused on China.
#2 Invest In More Than Electric Vehicles (EVs)
EVFM encompasses more than electric vehicles (EVs) – vehicles powered by electric batteries instead of conventional internal combustion engines, it also includes Future Mobility (FM). According to NikkoAM, future mobility is a broader concept covering the future of transport, ranging from EVs to Autonomous Vehicles, the sharing economy (including e-hailing services, distributed energy storage and intelligent transport systems) and more.
The NikkoAM-StraitsTrading MSCI China EVFM ETF captures companies along the entire EVFM value chain from EV manufacturing, hardware and components (including battery technologies), software (including developments in autonomous driving and vehicle connectivity that can open up new revenue streams) to infrastructure (including EV charging networks).
#3 The ETF Tracks The Underlying Index: MSCI China All Shares IMI Future Mobility Top 50 Index
The NikkoAM-StraitsTrading MSCI China EVFM ETF tracks the MSCI China All Shares IMI Future Mobility Top 50 Index which was launched on 6 Oct 2021. This is a customised index that aims to track the “performance of Chinese companies listed in US, Hong Kong and China, and other markets from time to time, that are expected to derive significant revenues from energy storage technologies (including electric vehicles), autonomous vehicles, shared mobility and new transportation methods.”
While this is a new index, the stocks selected to form the index are based on the parent index – the MSCI China All Shares Investable Market Index (IMI). Natural language processing and algorithmic tools are used to screen out keywords and phrases from data sources to identify companies that fit in the theme of China EVFM.
Based on back-testing, the index performance would have yielded a 67.31% annualised net return over the past 3 years, as of 30 November 2021. In comparison, the parent index, MSCI China All Shares IMI, yielded 10.82% in the same period.
#4 The Components Of NikkoAM-StraitsTrading MSCI China EVFM ETF
Based on the index, the NikkoAM-StraitsTrading MSCI China EVFM ETF consists of the 50 largest Chinese companies (by market capitalisation) that are expected to derive significant revenues from EVFM. These companies may be listed in the US, Hong Kong, Shanghai and Shenzhen and span the various China share classes.
The top 10 constituents of the NikkoAM-StraitsTrading MSCI China EVFM ETF are:
|Company||Index Weight (%)||Description|
|Contemporary Amperex Technology||12.64||Battery manufacturer for electric vehicle and energy storage systems|
|NIO||9.71||Premium EV manufacturer|
|Geely Automobile Holdings||9.32||Automobile manufacturer with key brands: Geely, Geometry and Lynk&Co|
|BYD (H-share)||5.81||Automobile manufacturer with business in EVs, energy storage and rail|
|Eve Energy||4.78||Battery manufacturer for electric vehicle and energy storage systems|
|XPeng||4.51||Premium EV manufacturer|
|Jiangxi Ganfeng Lithium (A-share)||4.17||Mining of lithium and manufacturer of lithium chemicals|
|Yunnan Energy New Material||4.04||Manufacturer of film products including lithium ion isolation films|
|Sungrow Power Supply||3.60||Photovoltaic inverter manufacturer with business in power station system integration|
Source: NikkoAM, Prospectus Brochure
The maximum weight of each security would be capped at 10% during each index review which is conducted twice a year.
#5 Risks Of Investing
As with any investment, there are risks associated with investing in this ETF. While EVFM is an exciting growth sector, it is very much a nascent sector that may face potentially rapid product obsolescence. As highlighted in the prospectus, there is no assurance that the companies will be able to protect their intellectual property or that competitors will not develop similar or better technologies. The automobile industry is also highly cyclical and may suffer periodic operating losses. Its high dependence on third-party producers such as semi-conductor chips may also adversely affect the listed automobile manufacturers.
Additionally, as the investors in China technology companies have found out, there are risks associated with investing in the China market. The Chinese government may implement government measures that can drastically impact the industry and these measures may not always have a positive effect.
How Can You Invest?
While there are other EVFM-related ETFs available in the global market, the NikkoAM-StraitsTrading MSCI China EVFM ETF is the first EVFM ETF listed on the SGX. This provides Singaporean investors an opportunity to invest in China EVFM in Singapore dollars as well as the option to invest via SRS.
If you are interested, the ETF’s initial offering period (IOP) has started and will run till 14 January 2022, and you can do so through the participating brokers. The participating dealers for the IOP are: CGS-CIMB, DBS Vickers, Moomoo/Futu, FSMOne, OCBC Securities, iFast Financial, iFast Global Markets, PhillipCapital, Tiger Brokers and UOB Kay Hian. The ETF will be listed on 20 January 2022.
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