Asia ETF Roundup (Industry) – October 2022

HK SFC sets out requirements to allow virtual asset futures ETFs; BOJ amends terms and conditions for ETF purchases.

Jackie Choy, CFA 09 November, 2022 | 15:15
Facebook Twitter LinkedIn

For economic and market news relating to Asian ETFs, please refer to our “Asia ETF Roundup (Market) – October 2022”.

ETF Industry News

HK SFC Sets Out Requirements to Allow Virtual Asset Futures ETFs

On 31 October 2022, the Hong Kong Securities and Futures Commissions issued the “Circular on Virtual Asset Futures Exchange Traded Funds” which sets out the requirements under which the SFC would consider authorising virtual asset futures ETFs for public offering in Hong Kong. It is worth noting that ETFs that invest directly in spot virtual assets remained out of scope.

Back in January 2022, the SFC and the Hong Kong Monetary Authority had issued the “Joint circular on intermediaries’ virtual asset-related activities” which stated that intermediaries may distribute virtual asset futures ETF that are traded in regulated exchanges specified by the SFC to retail investors, subject to certain regulatory requirements on the intermediaries. With the newly issued circular by the SFC, it is likely that virtual assets futures ETFs will appear in the Hong Kong market in the near future.

According to the circular, initially only Bitcoin futures and Ether futures traded on the Chicago Mercantile Exchange would be authorised to use by virtual asset futures ETF. Other key requirements of the virtual asset futures ETFs set out in the circular are as follows:

  • Management Company - The management company of a virtual asset futures ETF is required to have good track record of regulatory compliance and demonstrate at least 3 years’ proven track record in managing ETFs.
  • Eligible Futures – Only virtual asset futures traded on conventional regulated futures exchange are allowed. Initially only Bitcoin futures and Ether futures traded on the Chicago Mercantile Exchange are allowed.
  • Investment Strategy – The management company of a virtual asset futures is expected to adopt an active investment strategy to allow flexibility in portfolio composition, rolling strategy and handling of any market disruption events. The net derivatives exposure of the ETF shall not exceed 100% of the ETF’s total net asset value.
  • Disclosure – The product key facts statement of the ETF shall include disclosure of the investment objective and key risks associated with investment in virtual asset futures such as potential large roll costs and operational risks related to virtual asset futures.
  • Distribution – Intermediaries should comply with existing conduct requirements for derivative products and must also comply with the virtual asset-knowledge test requirements.

Like any other investments, investors should understand the nature and specifics of the products before investing into virtual asset futures ETFs. In particular, for virtual asset futures ETFs, they utilize futures to obtain exposures to virtual assets. Investors should understand the operations and risks associated with investing in virtual asset futures before making an investment decision.

BOJ Amends Terms and Conditions for ETF Purchases

On 28 October, the Bank of Japan amended the wording of the principal terms and conditions for ETF purchases. From 1 December 2022, the amount which the bank would purchase of each ETF will “take into account the holding costs of each ETF and other factors”. Previously, the bank stated that the maximum amount of each ETF that the bank purchases would “roughly be proportionate to the amount outstanding in circulation of that ETF issued.” It now appears that the BOJ will be more focused in the holding cost of the ETF when purchasing ETFs going forward. That said, the BOJ had slowed its ETF purchases dramatically since April 2021 and has not purchased ETFs since June 2022, according to the Bank’s records.

Shenzhen-Singapore ETF Link: First Master-Feeder ETF Coming in November

Recall that in December 2021, the Shenzhen and Singapore Stock Exchanges signed a memorandum to co-develop an ETF scheme linking the locally listed ETFs on each other’s exchanges. In October, UOB Asset Management partnered with Ping An Fund Management to launch the first master-feeder ETF. The ETF tracks the ChiNext Index and will be listed on the Singapore Stock Exchange on 14 November.

Another 4 Companies Identified Under Holding Foreign Companies Accountable Act (“HFCAA”)

In October, the U.S. Securities and Exchange Commission identified a further 4 companies under the Holding Foreign Companies Accountable Act (“HFCAA”). This puts the total number of companies on the provisional list and conclusive list of issuers identified under the HFCAA at 171 as of the end of October 2022. Companies added to the list included MINISO Group (MNSO) and New Oriental Education & Technology Group (EDU). According to the HFCAA and the companies’ announcements, a company’s ADR could be delisted from a U.S. stock exchange if the company remains in the list for three consecutive years.

Chinese Equity ETF Watch – Net Inflows of USD 0.4 Billion into Offshore Chinese Equity ETFs in Hong Kong

  • Hong Kong-domiciled ETFs in the China Equity Category saw net inflows estimated at USD 0.4 billion in October, mainly driven by an estimated net inflow of USD 466 million to the Hang Seng China Enterprises Index ETF (02828/82828) partly offset by an estimated net outflow of USD 88 million from the iShares Core MSCI China ETF (02801/09801).
  • Hong Kong-domiciled ETFs in the China Equity - A-Shares Category saw estimated net outflows of USD 108 million in October, mainly driven by the net outflows from the Haitong MSCI China A ESG ETF (03031/83031), estimated at USD 72 million.
  • In the first ten months of 2022, Hong Kong-domiciled ETFs in the China Equity Category and the China Equity – A-Shares Category saw estimated net inflows of USD 1.6 billion and USD 44 million, respectively.
  • In the U.S., the iShares China Large-Cap ETF (FXI) and the iShares MSCI China ETF (MCHI) recorded outflows, estimated at a combined USD 288 million. The KraneShares CSI China Internet ETF (KWEB) saw estimated net outflows of USD 79 million whereas the Xtrackers Harvest CSI 300 China A ETF (ASHR) saw net inflows of USD 29 million.

image

New Launches and Listings

China: 13 ETF New Listings

  • Chinese ETF providers listed 13 new ETFs on the Shanghai Stock Exchange and Shenzhen Stock Exchange in October. These included 1 broad-market ETF tracking the S&P 500 Index, 3 bond ETFs, and 9 thematic/sector ETFs on themes such as digital economy, traditional Chinese medicine, market chips, machine tools, and new materials.
  • An ETF tracking the CNI Consumer 100 Index was delisted from the Shenzhen Stock Exchange.
  • This brings the total number of ETFs listed in China to 746 (281 ETFs on the SZSE, 465 ETFs on the SSE).  

Hong Kong: 3 ETF New Listings

  • ETF providers in Hong Kong launched 1 ESG ETF, 1 bond ETF and a leveraged ETF in October.
  • Two ETFs tracking the CSI 300 Index managed by E Fund and Global X, respectively, were delisted.
  • This brings the total number of ETFs listed in Hong Kong to 254 (168 ETFs and 86 multiple counters, including 30 leveraged/inverse products).

South Korea: 8 ETF New Listings

  • Korean ETF providers listed 3 actively managed ETFs, 1 thematic ETF, 1 strategic-beta ETF, 1 broad market ETF tracking the S&P 500 and a pair of leverage and inverse ETFs referencing the MSCI China A50 Connect Index.
  • This brings the total number of ETFs listed in South Korea to 630.

Taiwan: 2 New ETF Listing

  • Taiwan ETF providers issued 1 ESG ETF and 1 strategic-beta (high dividend) ETF on the Taiwan Stock Exchange.
  • This puts the total number of ETFs listed in Taiwan at 230.

India: 2 New ETFs Listing

  • HDFC Asset Management in India listed 2 strategic-beta (momentum and low volatility) ETFs on local exchanges.

image

Facebook Twitter LinkedIn

About Author

Jackie Choy, CFA  is the Director of ETF Research for Morningstar Investment Management Asia

© Copyright 2022 Morningstar Asia Ltd. All rights reserved.

Terms of Use        Privacy Policy