Asia ETF Roundup (Industry) – November 2014

Prior to the launch of this programme, the issue of whether capital gains tax would be levied on trading A-Shares was a key concern for market participants. On Friday, 14 November 2014, the Ministry of Finance (MoF) and the China Securities Regulatory Commission (CSRC) put forth a notice (Notice 81) to temporarily exempt corporate income tax, business tax, and individual income tax on gains derived by foreign investors on the trading of A-Shares through the Stock Connect.

At the same time, Notice 79 was released, which asserted that QFIIs and RQFIIs without an establishment or place in China will also be temporarily exempt from corporate income tax on gains derived from the trading of equity investments (i.e. capital gains tax; CGT) effective from 17 November 2014. However, it is also clearly stipulated in Notice 79 that CGT will be imposed prior to 17 November 2014. As a result of Notice 79, A-Share ETFs and RQFII ETFs in Hong Kong with A-Share exposure made changes to their provisioning approach on the CGT on unrealised and realised gains. For a summary of the changes and the impact to these ETFs’ net asset values, please read our article: “A-Share/RQFII ETFs in Hong Kong After Notice 79”.

More Countries Granted RQFII Quota: Canada and Australia
During the month, two more countries, Canada and Australia, were granted RQFII quota (Rmb 50 billion each), which will enable them to invest directly into the China securities market. Other countries with RQFII quota include: Hong Kong (Rmb 270 billion), Taiwan (Rmb 100

Billion; received a favourable response from the Chinese government but have not yet been officially granted quota), the UK (Rmb 80 billion), Singapore (Rmb 50 billion), France (Rmb 80 billion), South Korea (Rmb 80 billion) and Germany (Rmb 80 billion).                

RQFII ETF Watch – Largest Monthly Net Outflows, at Rmb 7.8 billion, from RQFII ETFs

• In November, RQFII ETFs recorded net outflows for another month, estimated at Rmb 7.8 billion (13% of beginning and ending AUM), after Rmb 4.0 billion of estimated total net outflows in October. This is the largest monthly net total outflow since RQFII ETFs were launched Hong Kong in July 2012. The majority of the net outflows came from the CSOP FTSE China A50 ETF (82822 & 02822), estimated at Rmb 5.3 billion, followed by the Harvest MSCI China A 50 Index ETF (83136 & 03136), estimated at Rmb 1.1 billion and the ChinaAMC CES China A80 Index ETF (83180 & 03180), estimated at Rmb 0.7 billion.
• The largest A-Share ETF by AUM in Hong Kong, iShares FTSE A50 China Index ETF (02823), recorded net outflows estimated at Rmb 2.1 billion during the month, compared to Rmb 2.4 billion of net outflows in October.

New Launches and Listings

BMO Lists 3 ETFs in Hong Kong
On 13 November 2014, BMO Asset Management listed three ETFs on the Stock Exchange of Hong Kong. The ETFs, namely the BMO Asia USD Investment Grade Bond ETF (03141), the BMO Hong Kong Banks ETF (03143) and the BMO Asia High Dividend ETF (03145), which track the Barclays Asia USD Investment Grade Bond Index, the NASDAQ Hong Kong Banks Index and the NASDAQ Asia ex Japan Dividend Achievers Index, respectively.

The listing of these ETFs put the total number of ETFs listed in Hong Kong at 121 (140 listings).

Shinhan BNP Paribas Lists a Synthetic ETF in Korea
On 24 November 2014, Shihan BNP Paribas listed a synthetic ETF on the Korea Exchange, namely the SMART SYNTH-MSCI DM(H) ETF (A208470). The ETF tracks the MSCI World Index, offering exposure to 23 developed markets.

The listing of this ETF puts the total number of ETFs listed in Korea at 167. 

Fubon Lists a Pair of Leveraged and Inverse ETFs in Taiwan
On 25 November 2014, Fubon listed a leveraged and an inverse ETF on the Taiwan Stock Exchange. The ETFs, namely the Fubon SSE180 Leveraged 2X Index ETF (00633L) and Fubon SSE180 Inversed Index ETF (00634R) track the SSE180 Leveraged 2X Index and the SSE180 Inversed Index, respectively. The indices reflect a multiple or inverse of the daily performance of SSE180 basing on the risk free rate and short cost.

The listing of these ETFs put the total number of ETFs listed in Taiwan at 25.

List of ETFs Launched in November 2014