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Asia ETF Roundup (Industry) –December 2018 and January 2019

HK SFC introduces rules for active ETFs; S&P DJI adding China A-Shares in September 2019; HSCEI enhancement; HK-domiciled China equity ETFs see an estimated USD 0.9 billion in net outflows in 2018

Jackie Choy, CFA 14/02/19

For economic and market news relating to Asian ETFs, please refer to our “Asia ETF Roundup (Market) –December 2018 and January 2019”.

ETF Industry News
Hong Kong SFC Concluded Consultation on Amendments to the Code on Unit Trusts and Mutual Funds – Introducing Active ETFs
On 6 December 2018, SFC released consultation conclusions on proposed amendments to the Code on Unit Trusts and Mutual Funds (UT Code). The revised UT Code became effective on 1 January 2019. In particular, actively-managed ETFs are introduced and it is required that active ETFs’ full portfolio to be disclosed to the public on a monthly basis with a one-month lag.

The detail of the SFC’s Consultation Conclusions on Proposed Amendments to the Code on Unit Trusts and Mutual Funds can be found on the SFC website. The latest UT Code can be found here.

S&P DJI Adding China A-Shares in September 2019
On 5 December 2018, S&P Dow Jones Indices (S&P DJI) announced to include China A-Shares and Kuwait in their S&P Global BMI index family (along with other 5 index families, namely Dow Jones Global Index, Dow Jones Islamic Markets, S&P/IFCI, S&P Global BMI Shariah and S&P Global Property) while retaining Argentina at “Frontier Market” classification. The addition will be taking place prior to the market open on September 23, 2019.

According to S&P DJI, including China A-shares in its indices is a recognition of the importance of China in global investment portfolios and the evolution of its markets over the last several years. As a result, similar to MSCI and FTSE Russell, S&P DJI will add eligible China A-shares that are accessible via the Shanghai- and Shenzhen-Hong Kong Stock Connect programmes, using a reduced weight factor of 25% (comparing to FTSE Russell’s 25% and MSCI’s current 5%). Meanwhile, China A-shares will be classified as “Emerging Market”. S&P DJI estimates that China A-shares would account for 5.5% in the S&P Emerging BMI upon inclusion.

China to Combine QFII, RQFII Schemes and Expand Foreign Investment Scope
On 31 January 2019, the China Securities Regulatory Commission (CSRC) published draft rules to combine the two inbound investment schemes, namely, the Qualified Foreign Institutional Investor (QFII) scheme and Renminbi Qualified Foreign Institutional Investor (RQFII) scheme. The draft rules also broaden the schemes’ investment scope to include derivatives (financial and commodity futures and options), bond repurchases and private funds in order to promote further opening of China’s capital markets and introduce more long-term overseas capital. The draft rules are currently open for public consultation.

HSCEI to Remove the Fix on Number of Red/P-chip Constituents
On 30 January 2019, Hang Seng Indexes announced the conclusion of its consultation on the enhancement of the Hang Seng China Enterprises Index (HSCEI) by removing the fix on the number of Red/P-chip constituents (currently fixed at 10) while keeping the total number of constituents at 50. The enhancement will be effective from the June 2019 rebalancing. However, to minimize market impact, the maximum number of constituent changes will be limited to five in both the June and September 2019 rebalancings and no such limit from the December 2019 rebalancing onwards. The enhancement also relaxes the listing history requirements (fast entry mechanism) for the top 10 and top 11-20 Red/P-chips from three years to one year and two years, respectively.

China-Hong Kong ETF Connect Did Not Happen in 2018; Perhaps Through Cross-listing in the Future?
A China-Hong Kong ETF Connect programme between China and Hong Kong was proposed by the regulators back in August 2016 and there has been lack of detail on the programme ever since. During a media briefing held with the Chairman of the Hong Kong SFC in December 2018, Ignites Asia reported that “the SFC will not abandon the plans to establish an ETF Connect scheme with China, it will remain a longer-term development project that will follow the cross-listed regime.”

Chinese Equity ETF Watch – HK-Domiciled Chinese Equity ETFs See Estimated USD 0.9 billion Net Outflows from Offshore Markets and USD 0.3 Billion Net Inflows to Onshore Markets
• In 2018, among ETFs domiciled in Hong Kong, we estimated net outflows of USD 0.9 billion from ETFs within the China Equity Morningstar Category. We estimate net inflows of USD 0.3 billion into the China Equity – A-Shares Category.
• By way of comparison, looking at the U.S. ETF market, the two largest ETFs by AUM offering broad Chinese offshore equity exposure, namely the iShares China Large-Cap ETF (FXI) and the iShares MSCI China ETF (MCHI), gathered net new flows amounting to around USD 3.9 billion. The largest ETF by AUM with broad Chinese onshore equity exposure, namely the Xtrackers Harvest CSI 300 China A ETF (ASHR) gathered assets of around USD 0.7 billion.
• Looking at the first month of 2019, Hong Kong-domicilied ETFs in the China Equity Category saw estimated outflows of USD 654 million, coming mainly from the Hang Seng China Enterprises ETF (02828). Meanwhile, ETFs in the China Equity – A-Shares Category saw small estimated outflows of USD 16 million.
• In the U.S. in January, we saw the opposite trend from that in Hong Kong. There, we saw an estimated USD 271 million of inflows into the iShares China Large-Cap ETF (FXI) and the iShares MSCI China ETF (MCHI) and estimated USD 85 million of inflows into the Xtrackers Harvest CSI 300 China A ETF (ASHR).

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New Launches and Listings

CICC, CSOP, Ping An Listed 5 ETFs in Hong Kong
During December 2018, CICC listed two ETFs on the Hong Kong Stock Exchange. They track the CSI CICC Select 100 Index and the Bloomberg Barclays China Treasury 1-10 Years Index, respectively.

On 7 December, Ping An listed two ETFs. These ETFs track the Nasdaq CTA Artificial Intelligence and the Robotics Index and Nasdaq 5HANDLTM Index, respectively.

On 25 January, CSOP listed a money market ETF. The ETF tracks FTSE 3-Month US Dollar Eurodeposit Index.

These listings put the total number of ETFs listed in Hong Kong at 196 (131 ETFs, 68 multiple counters, including 22 L&I Products).

New China, Founder Fubon, Hua An, Huatai-Pinebridge, Bosera, China AMC, Yinhua, CCB Principal, Horizon Asset Listed 10 ETFs in China
On 7 December 2018, New China Fund Management listed an ETF on the Shenzhen Stock Exchange. The ETF tracks the MSCI China A International Index.

On 19 December, Founder Fubon listed an ETF on the Shenzhen Stock Exchange. The ETF tracks the SZSE 100 Price Index.

On 11 January 2019, Hua An listed an ETF on the Shanghai Stock Exchange. The ETF tracks the CSI 500 Low Beta Low Volatility index.

On 18 January, Huatai-Pinebridge, Bosera, China AMC, Yinhua listed four ETFs on the Shanghai Stock Exchange. The ETF of Huatai-Pinebridge tracks the CSI Dividend Low Volatility Index while the other three ETFs track the CSI SOE Structure Reform Index.

On 21 January, CCB Principal and Horizon Asset listed two ETF on the Shanghai Stock Exchange. They track the Hang Seng China Enterprises Index and the FTSE China A50 Index, respectively.

These listings put the total number of ETFs listed in China at 193 (55 ETFs on the SZSE, 138 ETFs on the SSE).

NH-Amundi, Samsung, Mirae Asset, KB, Kiwoon, Korea Investment Listed 8 ETFs in Korea
On 21 December 2018, NH-Amundi Asset Management listed an ETF on the Korea Exchange tracking the FnGuide Agriculture Business Industry Index.

On 10 and 22 January 2019, Samsung Asset Management listed two ETFs. They track the NYSE Fang+ USD Index and the FnGuide TOP 5 Plus Total Return Index, respectively.

On 15 January, Mirae Asset listed an ETF tracking the KOSPI 200 Communication Service Index.

On 15 and 22 January, KB Asset Management listed two ETFs. These ETFs track the KOSPI 200 Communication Service Index and the WISE Large Cap High Dividend 10 TR Index, respectively.

On 22 January, Kiwoom Asset Management listed an ETF tracking the KOSDAQ 150 Index.

On 29 January, Korea Investment listed an ETF tracking the Morningstar Singapore REIT Yield Focus Index(PR).

These listings put the total number of ETFs listed in Korea at 420.

Uni-President, Paradigm, Capital Investment, Taishin, Yuanta, Fuh Hwa, CTBC, Cathay Listed 12 ETFs in Taiwan
On 6 December 2018, Uni-President Asset Management listed an ETF on the Taiwan Stock Exchange. The ETF tracks the NYSE FANG+ Index.

On 19 December, Paradigm Asset Management listed an ETF tracking the Dow Jones Commodity Index North American Copper Excess Return Index.

On 24 December, Capital Investment Trust listed two ETFs on the Taipei Exchange. These ETFs track the ICE 25+ Year US Treasury Index and the ICE 0-10 Year Laddered Maturity China Policy Bank Index, respectively.

On 23 January 2019, Taishin Investment and Yuanta listed an ETF on the Taiwan Stock Exchange and an ETF on Taiwan Stock Exchange respectively. These ETFs track the MSCI China Free Leveraged 2X Daily Index and STOXX® Global Artificial Intelligence Index, respectively.

On 28 January 2019, Fuh Hwa Securities Investment Trust listed two ETFs on the Taipei Exchange and an ETF on Taiwan Stock Exchange. These ETFs track the Bloomberg Barclays U.S. Treasury 20+ Year Total Return Index, Bloomberg Barclays China Credit Select Index and Dow Jones U.S. Financial Services Index, respectively.

On 29 January 2019, CTBC and Cathay Securities Investment Trust listed two ETFs on the Taipei Exchange and an ETF on Taiwan Stock Exchange. These ETFs track the Bloomberg Barclays USD Corporate 10+ Year High Grade Capped Bond Index, the Bloomberg Barclays Banking Senior 10+ Year Bond Index and the S&P North American Technology Sector Index, respectively.

These listings put the total number of ETFs listed in Taiwan at 156.

Aditya Birla Sun Life Listed an ETF in India
On 21 December, Aditya Birla Sun Life listed an ETF on the Bombay Stock Exchange. The ETF tracks the Nifty Next 50 Index.

ETFs Launched in December 2018 and January 2019 in the Asia ex-Japan Region

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About Author Jackie Choy, CFA

Jackie Choy, CFA  

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