Just one month into 2013, the number of new ETF launches has been light but the market has already geared for a number of first-of-a-kind ETFs coming soon to the market in China.
For economic and market news relating to Asian ETFs, please refer to our “Asia ETF Roundup (Market) – December 2012 and January 2013”.
ETF Industry News
New Products Coming to the Chinese Domestic Market
· First ETF to track Nasdaq 100 - According to Ignites Asia, Guotai Asset Management is planning to launch a cross-border ETF in China tracking the Nasdaq 100 Index. At present, the two existing cross-border ETFs in China (managed by China AMC and E Fund) track indices of stocks listed in Hong Kong. We believe the launch of more cross-border ETFs in China will provide domestic Chinese a channel to better diversify their portfolios.
· Bond ETFs - According to the China Daily, Guotai Asset Management and Bosera Asset Management have obtained approval from the CSRC to launch bond ETFs. The new funds would track the SSE 5-Year China Treasury Note Index and the SSE Corporate Bond 30 Index. In addition, according to the CSRC’s website, E Fund also applied for the launch of a bond ETF tracking the ChinaBond New Medium Term Notes Index. These new ETFs would be a welcome addition to the current equity-only menu.
· Gold ETFs – According to the website of the CSRC, Guotai Asset Management, HuaAn Funds, Bosera Asset Management and E Fund have applied for the launch of gold ETFs.
RQFII Scheme Opening Up to Foreign Managers?
As reported by Ignites Asia, China may further open up the RQFII scheme to allow foreign managers to launch ETFs. We would view any such development positively as it would promote a more diverse and competitive local ETF market.
RQFII Scheme to Expand to Taiwan?
At a meeting between the regulators of China and Taiwan, the CSRC has responded favourably to Taiwan official’s request for a Rmb100 billion quota in the RQFII scheme. The RQFII scheme is currently applied only to Hong Kong with a total quota of Rmb270 billion. Taiwan’s request amounts to 37% of Hong Kong’s current quota. As we mentioned in our preview of what to expect in 2013 “A Look at what's in Store for the ETF Industry in 2013”, we had hoped that ultimately the RQFII scheme would expand to countries outside of Hong Kong, which would benefit international investors. We believe the scheme’s expansion to Taiwan could potentially allow the launch of RQFII ETFs in the Taiwanese market, benefiting the local market.
A Synthetic A-Share ETF in HK Added QFII Direct Investment Capacity
According to an announcement made by the W.I.S.E. CSI 300 China Tracker (02827; listed in Hong Kong), with effect from 8 February 2013, the manager of the ETF will utilise its US$90m QFII (Qualified Foreign Institutional Investor) quota to invest directly into A-Shares for the account of the ETF. The ETF currently utilises A-share access products (AXPs), derivative instruments linked to an A share or a basket of A shares, to track the underlying index. As compared to the ETF’s fund size of HK$10bn as of end-January 2013, the US$90m quota is small at 7%. Note that under the QFII regulations, invested capital may not be repatriated for a minimum of one year as it is subject to a one-year lock-up period. As a result, the restriction or delay in repatriation of invested capital and net profits may impact the ETF’s ability to meet redemption requests; thus adversely affecting the timing or ability of the investors to receive settlement. That said, with the small amount of invested capital under the QFII quota (again, 7% of AUM), we believe the risk of any disruption to the redemption process caused by repatriation restrictions/delays is remote. At the same time, the benefit of having a QFII route for the ETF to invest into the A-Share market is to allow the ETF to have a larger AUM through creation, despite the amount being only US$90m.
Two CIMB ETFs in Singapore Classified as an Excluded Investment Product
With effect from 16 January 2013, the CIMB FTSE ASEAN 40 (QS0, M62) and the CIMB S&P Ethical Asia Pacific Dividend ETF (P5P, QR9) were classified as “Excluded Investment Product” (EIP) and their “Specified Investment Product” (SIP) tag was removed. Recall that ETFs tagged as SIPs require brokers to assess retail investors’ trading/investing experience before being allowing them to make a transaction. No such assessment is required for trading EIPs. We believe the less stringent assessment requirement on less sophisticated investment products can raise investors’ interest in these products, and we expect more ETFs eligible for a reclassification will also receive EIP classification. However, synthetic ETFs will likely remain in the SIP category as they use derivatives--which does not fall into the scope of the EIP classification.
RQFII ETF Watch
· Second Batch of RQFIIs ETF Coming Soon? – According to Ming Pao Daily, the second batch of RQFII ETFs is likely to come from 4 China-based ETF providers, namely Bosera Asset Management, HuaAn Asset Management, China Universal Asset Management and DaCheng Fund Management. Reportedly, three of the ETFs will track the CSI 300 Index and one will track the CSI 100 Index.
· CSOP Granted Additional RQFII Quota and Applying for More – On 12 December 2012, CSOP FTSE China A50 ETF (82822, 02822) announced that it had applied for an increase to its RQFII quota. The ETF obtained an increase to its RQFII quota of RMB 5 billion on 6 December 2012, putting its total quota granted at RMB 15 billion.
· ChinaAMC Too… – On 12 December 2012, ChinaAMC CSI 300 Index ETF (83188, 03188) announced that it had applied for an increase to its RQFII quota. The ETF obtained an increase to its RQFII quota of RMB 5 billion on 6 December 2012, putting its total quota granted at RMB 13 billion.
· E Fund Makes Three… – On 19 December 2012, E Fund CSI 100 A-Share Index ETF (83100, 03100) announced that it had applied for an increase to its RQFII quota. The ETF obtained an increase to its RQFII quota of RMB 5 billion on 17 December 2012, putting its total quota granted at RMB 10 billion.
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New Launches and Listings
Mirae Lists 2 ETFs in Korea
On 17 December 2012, Mirae Asset Management listed an ETF on the Korea Exchange, namely the TIGER Physical Copper ETF (A160580). The ETF invests in physical copper and is the first ETF offering exposure to a nonferrous metal in Asia.
On 17 January 2013, Mirae listed the TIGER Beta Plus ETF (A170350). The ETF tracks the FnGuide BetaPlus Index.
China Asset Management Lists an ETF in China
On 16 January 2013, China Asset Management listed the China AMC CSI 300 Index ETF (510330) on the Shanghai Stock Exchange. This is the third cross-market ETF listed on the Chinese domestic market. The puts the total number of ETFs listed in China at 48.
Samsung Lists an ETF in Korea
On 21 January 2013, Samsung listed the KODEX FTSE China A50 ETF (A169950). This is the first ETF in Korea employing a FTSE index and is the second ETF tracking the China domestic A-Share market, after the KINDEX China A CSI300 ETF was launched in November 2012 by Korea Investment.
The total number of ETFs listed in Korea now stands at 137.
List of ETFs Launched in December 2012 and January 2013
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Jackie Choy, CFA, is an ETF Strategist with Morningstar
