Asia ETF Roundup (Industry) – April 2013

In our opinion, with the China A-Share market representing the most direct reflection of China’s economy, the addition of China A-Shares to the emerging market by major index providers would allow investors to achieve purer exposure to Chinese equities. That said, we believe that prerequisites for the addition of A-Shares to the main emerging market benchmarks include further opening up of the domestic Chinese market to international investors, which may require the further relaxation of the QFII and RQFII rules along with other rules and regulations on repatriation of the Renminbi.

New Products Coming to the Chinese Domestic Market

·         First local ETF to track the Nasdaq 100 completed initial subscription phase - According to the offering documents by Guotai Asset Management, the first Chinese ETF to track the Nasdaq 100 Index just completed the initial subscription stage, and was accepting applications between April 15 and 19 and raised Rmb 267 million. Upon listing, this ETF will become the third cross border ETF, following those tracking the Hang Seng Index and the Hang Seng China Enterprises Index.

Vanguard to Launch its First Hong Kong-listed ETF
According to the Hong Kong Securities and Futures Commission (SFC) website, on 24 April 2013, Vanguard obtained authorisation from the SFC to launch its first Hong Kong-listed ETF, namely the Vanguard FTSE Asia ex Japan Index ETF (02805). The ETF will track the FTSE Asia Pacific ex Japan, Australia and New Zealand Index and levy a TER of 0.38%, with an expected listing date on 15 May 2013. Compared to other ETFs in Hong Kong and Singapore with similar geographical exposures, the iShares MSCI Asia APEX 50 Index ETF (03010, listed in Hong Kong) levies a TER of 0.59% while the db x-trackers MSCI AC Asia ex Japan Index UCITS ETF (IH1, listed in Singapore) levies a TER of 0.65%. The fact that this fund’s TER (0.38%) is the lowest of the bunch is unsurprising given Vanguard’s low-cost heritage.

RQFII ETF Watch – More Redemptions in April

·         Recall that, for the months of February and March 2013, we estimated net outflows of Rmb 1.6 billion from the 4 RQFII ETFs.

·         During the month of April, we saw more outflows. We estimate that there were Rmb 4.3 billion in outflows from the 4 RQFII ETFs (10.4% and 11.8% of beginning and ending AUM respectively). The majority of the outflows came from the E Fund CSI 100 A-Share Index ETF (83100 & 03100). This fund saw its AUM shrink to Rmb 6.0 billion as of end-April from Rmb 9.9 billion a month ago.

·         The largest A-Share ETF by AUM in Hong Kong, iShares FTSE A50 China Index ETF (02823), also took a hit, we estimate that this fund witnessed a net outflow of Rmb 3.5 billion (7.4% and 8.1% of beginning and ending AUM respectively) in April.

New Launches and Listings

Krung Thai Lists an ETF in Thailand
On 2 April 2013, Krung Thai Asset Management listed an ETF on the Stock Exchange of Thailand, namely the KTAM SET Food and Beverage ETF Tracker (EFOOD). The ETF tracks the SET Food and Beverage Sector Index, a capitalisation-weighted index. The index consists of 26 stocks representing the manufacturers and distributors of food and beverages within the SET Index. This puts the total number of ETFs listed in Thailand at 13.

db X-trackers lists 5 Synthetic ETFs in Hong Kong
On 11 April 2013, db X-trackers listed 5 synthetic ETFs on the Hong Kong Stock Exchange, offering exposure to Asia ex-Japan high dividend yield, emerging markets (Bangladesh, Pakistan and Philippines) and Singapore. Amongst this group Bangladesh, Pakistan and Singapore represent new geographic exposures for the Hong Kong ETF market. This brings the total product offering from db X-trackers to 35 ETFs in Hong Kong and total number of ETFs in Hong Kong to 104.

China Southern Lists an ETF in China
On 11 April 2013, China Southern Asset Management listed an ETF on the Shenzhen Stock Exchange, namely the China Southern Kaiyuan CSI 300 Index ETF (159925), tracking the CSI 300 Index. The launch of this ETF put the total number of cross-market ETFs listed in China at 8 and total number of ETFs at 55.

List of ETFs Launched in April 2013

Jackie Choy, CFA, is an ETF Strategist with Morningstar