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Asia ETF Roundup (Industry) – September 2018

China A-Shares: FTSE adds, MSCI Proposes more.

Jackie Choy 11/10/18

For economic and market news relating to Asian ETFs, please refer to our “Asia ETF Roundup (Market) –September 2018”.

ETF Industry News

FTSE Russell to Include China A-shares

On 26 Sept 2018, FTSE Russell announced its decision to promote China A-shares markets to "Secondary Emerging market" status, from "Unclassified" status. This means that China A-shares will be included in FTSE Russell's international benchmarks. Here are some of the key details of the inclusion process:

  • This is phase 1 of FTSE Russell's China A-shares inclusion. The inclusion will be calculated using 25% of investable market capitalisation of eligible China A-shares (this compares with MSCI's current China A-shares inclusion factor of 5%).
  • Eligible China A-shares include large-, mid- and small-cap securities from the FTSE China Stock Connect All Cap Index (around 1250 stocks), that is, stocks available through the Stock Connect programmes.
  • Phase 1 inclusion will be implemented in three tranches. The first will begin in June 2019 (20%). Subsequent increments will follow in September 2019 (40%), and March 2020 (40%).
  • Upon completion of phase 1 in March 2020, China A-shares would represent around 5.5% in the FTSE Emerging Market Index, or 0.57% of the FTSE Global All Cap Index. Further phases of inclusion will be considered but no timeline was given.
  • FTSE Russell estimates initial net passive inflows of USD 10 billion resulting from this inclusion.

In addition, FTSE Russell also announced it will add China government bonds to their Watch List for possible inclusion in FTSE's global bond indexes.

MSCI Proposes Increasing China A-shares Inclusion Factor and Adding Mid-Caps

A day before FTSE Russell's announcement, on 25 Sept 2018, MSCI launched a consultation on its proposal to further increase the weights of China A-shares in the MSCI Indexes. Recall that MSCI recently completed its initial two-step inclusion of China A-shares into the MSCI EM Index (at 5% inclusion factor on large-cap China A-shares). This change took effect at the market close of 31 Aug 2018. The details of MSCI's latest proposal are as follows:

  • Increase large-cap China A-shares' inclusion factor from 5% to 20% in two phases from the May 2019 review;
  • Add ChiNext board as eligible exchange segment from the May 2019 review;
  • Add China A-shares mid-cap with a 20% inclusion factor as part of May 2020 review.

If the three proposals were implemented as proposed, China A-shares' weight in the MSCI Emerging Markets Index would increase from the current 0.7% to 3.4% including the addition of 199 mid-cap China A-shares and ChiNext stocks.

GICS Sector Changes to Communications Services from Telecommunication Services

After the market close of 28 September, the Global Industry Classification Standard, or GICS, created by S&P Dow Jones and MSCI, implemented a structural change whereby the “Telecommunication Services” sector was broadened and renamed to “Communication Services”. The renamed sector now includes companies that facilitate communication and offer related content and information through various media, which includes existing telecommunications companies, as well as companies selected from the consumer discretionary sector which was classified under the media industry group and the Internet & direct marketing retail subindustry, along with select companies classified in the information technology sector. For instance, Alphabet and Facebook (previously in the Information Technology sector), and Disney and Comcast Corp (previously in the Consumer Discretionary sector) are now included in the new Communication Services sector; whereby Alibaba Group and EBay were moved from the Information Technology sector to the Consumer Discretionary sector.

RQFII ETF Watch – Net Inflows Totaled Rmb 0.8 Billion in September

  • RQFII ETFs recorded estimated net inflows of Rmb 0.8 billion in September (3.1% of beginning AUM), which compares with net outflows of Rmb 0.2 billion in August. This puts YTD estimated net outflows from RQFII ETFs in Hong Kong at Rmb 3.8 billion.
  • Net inflows came mainly from the ChinaAMC CSI 300 Index ETF (83188 & 03188), estimated at Rmb 0.9 billion.
  • The largest A-Share ETF by AUM in Hong Kong, iShares FTSE A50 China Index ETF (02823/82823), recorded an estimated net inflow of Rmb 0.1 billion in September. This follows estimated net inflows of Rmb 1.0 billion in August. September’s inflows further narrow YTD estimated net outflows from this ETF to Rmb 4.4 billion.

New Launches and Listings

BOCI-Prudential Lists an ETF in Hong Kong

On 12 September, BOCI-Prudential Asset Management listed an ETF (03182) on the Stock Exchange of Hong Kong, which tracks the Nasdaq Overseas China New Economy Companies Top 50 Index. This index selects the largest 50 companies from China (excluding China A-shares) in sectors including Consumer Goods, Health Care, Consumer Services or Technology. The last time BOCI-Prudential listed an ETF in Hong Kong was in 2009.

These listings put the total number of ETFs listed in Hong Kong at 191 (126 ETFs, 65 multiple counters, including 22 L&I Products).

Fuh Hwa, KGI List 4 Bond ETFs in Taiwan

On 4 September, Fuh Hwa Securities Investment Trust listed a bond ETF on the Taipei Exchange, which tracks the Bloomberg Barclays China Policy Bank 5+ Year 15 bln Net Index.

On 20 September, KGI Securities Investment Trust listed 3 bond ETFs. These ETFs track the Bloomberg Barclays China Policy Bank 3-10 Years Index, the Bloomberg Barclays EM USD Sovereign + Quasi-Sov Baa 10+ Year 15% Country Cap Index, and the Bloomberg Barclays US Corporate 10+ Year Technology Index, respectively.

These listings put the total number of ETFs listed in Taiwan at 136.

Mirae, Samsung, NH-Amundi List 7 ETFs in Korea

On 12 September, Mirae Asset listed an ETF on the Korea Exchange, tracking the WISE Secondary Cell Theme Index.

On 12 September, Samsung Asset Management listed 3 ETFs. These ETFs track the FnGuide Secondary Battery Industry Index, and the performance and inverse performance of the S&P Ultra T-Bond Futures Excess Return Index, respectively.

On 18 September, NH-Amundi Asset Management listed 3 ETFs. These ETFs track the KAP Short-Term MSB Index (Total Return), the 2x performance of the F-KOSDAQ150 Index, and the inverse performance of the F-KOSPI 200 Index, respectively. 

These listings put the total number of ETFs listed in Korea at 399.

SWS MU Lists an ETF in China

On 20 September, SWS MU Fund Management listed an ETF on the Shanghai Stock Exchange, which tracks the SSE 50 Index.

This listing puts the total number of ETFs listed in China at 181 (54 ETFs on the SZSE, 127 ETFs on the SSE).

ICICI Lists an ETF in India

On 26 September, ICICI Prudential Asset Management listed an ETF, tracking the S&P BSE Liquid Rate Index.

ETFs Launched in September 2018 in the Asia ex-Japan Region

About Author Jackie Choy

Jackie Choy  

is the director of ETF Research for Morningstar Investment Management Asia