For economic and market news relating to Asian ETFs, please refer to our “Asia ETF Roundup (Market) – February 2013”.
ETF Industry News
New Products Coming to the Chinese Domestic Market
· First ETF to track EURO STOXX 50 – STOXX announced that the EURO STOXX 50 Index has been licensed to China Universal for launching an ETF in China. This will become the 4th cross-border ETF in China but the first that tracks the European market. This will further expand the choices available for the domestic investors in Mainland China.
Relaxation of RQFII Rules
According to the Financial Times, the Securities and Futures Commission (SFC) in Hong Kong released additional Q&A on the topic of RQFII. Perhaps the most notable change pertained to the participation of foreign firms in the programme. The prior language stipulated that RQFII managers had to have a Mainland parent. The new language allows for RQFII managers that do not have a mainland parent. RQFII managers without mainland parent firms must have at least one key personnel with at least two years’ physical A-share ETF portfolio management experience. According to the Hong Kong Economic Times (HKET), Chinese authorities may also allow fund management companies or securities firm without a Chinese parent to be qualified as RQFII.
In addition, according to the HKET, the Chinese authorities are also planning to relax the fixed investment ratio between debt and equity of 80:20 for RQFII funds.
We view these developments positively as they would likely further open up the A-Share market to international investors.
SPDR Gold Trust Approved for Inclusion in Hong Kong’s MPF Funds
SPDR Gold Trust (02840 listed in HK, also known as SPDR Gold Shares, GLD listed in the US), the world’s largest commodity ETF, announced that it has been approved as a “permissible MPF investment” for HKMPF Constituent Funds by the Mandatory Provident Fund Schemes Authority (MPFA) for Hong Kong, allowing scheme providers to invest up to 10% of each Constituent Fund in SPDR Gold Trust.
By way of background, the Mandatory Provident Fund (MPF) system was launched in December 2000 to assist the employed population of Hong Kong to accumulate retirement savings. While currently only up to 10% of each Constituent Fund can be invested in SPDR Gold Trust, we are glad to see this step taken to let ETFs to be used in an extended manner locally and have the option to use gold as a diversification tool within the scheme portfolio.
Two RQFII ETFs List in Japan as JDR
On 27 February 2013, two RQFII ETFs listed in Tokyo. ChinaAMC CSI 300 Index ETF (83188 and 03188) and CSOP FTSE China A50 ETF (82822 and 02822), were listed on the Tokyo Stock Exchange (TSE) as Japanese Depositary Receipts (JDRs). JDRs are beneficiary certificates of a beneficiary certificate-issuing trust issued as entrusted securities which are foreign securities traded domestically in Japan. The mechanism is similar to ADRs (American Depositary Receipts) in the US and the GDRs (Global Depositary Receipts) in Europe. We view the allowance of listing of the JDRs on the RQFII ETFs by the TSE as clear evidence of investor demand outside of Hong Kong for such products.
ETFs Coming Soon to the Philippines?
According to AsianInvestor, the Philippine Stock Exchange (PSE) concluded a consultation on draft rules on ETFs in January which is pending final approval by the Philippines’ Securities and Exchange Commission (SEC). Recall that in October 2012, the SEC issued a circular allowing the launch of ETFs in the Philippines. According to the report, industry players expect the PSE to issue final rules within the first quarter.
Introduction of Synthetic ETFs in Korea
According to a press release by the Financial Services Commission (FSC) in Korea, the FSC has approved a revision of the listing regulations which laid a foundation for introducing synthetic ETFs to Korea. The FSC expects synthetic ETFs to be listed on the Korea Exchange (KRX) in the first half of this year. In addition, the FSC strengthened the criteria for listing and delisting ETFs. Minimum principal for listing ETFs has been increased from KRW 5 billion to KRW 7 billion and ETFs smaller than KRW 5 billion will be reviewed semi-annually and delisted if they fail to meet certain criteria.
We expect the introduction of synthetic ETFs into Korea could expand the menu of underlying exposures available on the local market. It could also potentially result in lower fees, as synthetic ETFs generally levy lower TERs as compared to the physical replication ETFs. As always, it is important that investors assess and understand the risks and benefits associated with synthetic replication ETFs.
MSCI Index Constituent Changes
According to MSCI, the following index constituent changes were made, effective as of market close on 28 February 2013:
· MSCI China Index: 3 additions - Greentown China (03900), New China Life Insurance (01336), People's Insurance (01339)
· MSCI India Index: 1 deletion - Maruti Suzuki India (MARUTI)
· MSCI Japan Index: 1 addition – Japan Exchange Group (8697); 1 deletion: Square Enix (9684)
· MSCI China A Index: No change
Hang Seng Index and Hang Seng China Enterprises Index Constituent Changes
According to the Hang Seng Indexes Company, effective on 4 March 2013, the following index constituent changes were made:
· Hang Seng Index: 1 addition – Lenovo Group (00992); 1 deletion – Aluminum Corporation of China (02600)
· Hang Seng China Enterprises Index: 1 addition – Haitong Securities (06837); 1 deletion – ZTE Corporation (00763)
FTSE Indices Implement Actual Free Float Adjustment from 18 March 2013
With effect from 18 March 2013, FTSE will implement actual free float adjustments (rounded up to the next 1%) on all float-weighted FTSE Indices, save for those for which it has already been implemented (i.e. the FTSE UK Index Series) instead of the current banded float adjustements. For details of the changes, please refer to the FTSE website.
According to announcements made by a number of ETFs tracking the FTSE Index, such as the CSOP FTSE China A50 ETF (82822, 02822) and the iShares FTSE A50 China Index ETF (02823), certain costs resulted from the above changes will be borne by the ETFs but such costs are anticipated not to be material.
RQFII ETF Watch
· JDRs launched, but where are the new quotas? – As mentioned, two RQFII ETFs were listed in Japan as JDRs. However, it has been over 2 months since the RQFII ETFs last applied for additional quota--both ChinaAMC CSI 300 Index ETF (83188 and 03188) and CSOP FTSE China A50 ETF (82822, 02822) filed for additional RQFII quota on 12 December 2012. To date, they have not been granted the additional quota they petitioned for back in December. While the successful launch of the JDRs will likely expand the investor base for these ETFs, with limited quota, we are concerned that premiums could develop should demand for these funds outstrip their underlying quota capacity.
New Launches and Listings
One Asset Management Lists an ETF in Thailand
On 21 February 2013, One Asset Management listed the ThaiDex SET100 ETF on the Stock Exchange of Thailand (SET). The ETF tracks the SET100 Index, a market capitalisation-weighted index of the largest 100 listed companies on the SET.
The total number of ETFs listed in Thailand now stands at 12.
List of ETFs Launched in February 2013
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Jackie Choy, CFA, is an ETF Strategist with Morningstar.
