Asia ETF Roundup (Industry) – May 2013

New Products Coming to the Hong Kong Market – Including First Dim Sum Bond ETF

         iShares is launching Asia’s first dim sum bond ETF (dim sum bonds refer to bonds issued outside the PRC but denominated and settled in RMB), namely the iShares RMB Bond Index ETF (RMB counter 83139, HKD counter 03139). The fund will be listed on the Stock Exchange of Hong Kong on 18 June 2013. This is the first dim sum bond ETF in Asia and the third fixed income ETF in Hong Kong. According the ETF’s prospectus, the ETF tracks the Citi RMB Bond Capped Index (designed to measure the performance of RMB-denominated bonds issued outside China) and levies a TER of 0.39%. Comparing to other dim sum bond ETFs around the world, the three ETFs listed in the US levy TERs ranging from 0.39% to 0.65%.

         Harvest is launching its second RQFII ETF in Hong Kong, namely the Harvest MSCI China A 50 Index ETF (RMB counter 83136, HKD counter 03136), after its Harvest MSCI China A Index ETF (83118, 03118). This ETF tracks the MSCI China A 50 Index and levies a TER of 0.80%, lower than that of the 4 existing RQFII ETFs ranging from 0.88% to 1.15%. The ETF has an initial RQFII quota of RMB 2 billion and is listing on the Stock Exchange of Hong Kong on 6 June 2013.

         Mirae is launching two ETFs in Hong Kong, namely the Horizons Hang Seng High Dividend Yield ETF (03110) and the Horizons MSCI China ETF (03040). Full details on these ETFs were not yet available as of the time of writing.

New Products Coming to the Chinese Domestic Market

After a wave of cross market ETFs was launched in China over the past few months tracking the CSI 300 Index, the next wave appears to be forming — this one focused on sector ETFs. According to Ignites Asia, a number of sector ETFs are in the pipeline:

         China Universal Asset Management filed 4 sector ETFs tracking the CSI Main Consumption, CSI Medical, CSI Energy and CSI Financial and Real Estate indices.

         E Fund Management filed 7 sector ETFs tracking the CSI 300 sector indices in Nonferrous Metal, Non-Bank Financial, Main Consumption, Bank, Energy, Medical and Real Estates.

We welcome the prospect of a more diversified product menu in the Chinese domestic ETF market. We believe sector ETFs could be good tools for investors to accomplish their investment goals, e.g. through diversification or via sector rotation strategies.

MSCI Constituent Changes

With effect from the market close on 31 May 2013, index constituent changes were made on the key Asian indices. A summary of these changes can be found in MSCI’s press release and List of Additions/Deletions.

Hang Seng Index and HSCEI constituent Changes

With effect from 17 June 2013, the following changes will be made to the Hang Seng Index and the Hang Seng China Enterprises Index (HSCEI):

         Hang Seng Index: 1 addition: Galaxy Entertainment Group (00027); 1 deletion: Esprit Holdings (00330)

         HSCEI: 1 addition: The People’s Insurance Co. (Group) of China (01339); 1 deletion: Aluminum Corporation of China (02600).

RQFII ETF Watch – New Quotas Granted

         After 5 months of no additional RQFII quota being granted to any of the RQFII ETFs, on 8 and 9 May 2013, ChinaAMC CSI 300 Index ETF (83188, 03188) and CSOP FTSE China A50 ETF were granted RMB 2 billion quota each. This puts the total quota granted to these ETFs at Rmb15 billion and Rmb17 billion, respectively.

         Recall that, for the month of April 2013, we estimated net outflows of Rmb 4.3 billion from the 4 RQFII ETFs.

         During the month of May, we continued to see net outflows. We estimate that there were Rmb 248 million outflows from the 4 RQFII ETFs (0.7% and 0.6% of beginning and ending AUM respectively).

         However, the pictures of in/out-flow amongst the 4 RQFII ETFs were rather different. Net inflows of around Rmb 1.9 billion were noted from the CSOP FTSE China A50 ETF (82822 & 02822) which obtained additional RQFII quota during the month. Meanwhile we continued to see outflows from the E Fund CSI 100 A-Share Index ETF (83100 & 03100) and the ChinaAMC CSI 300 Index ETF (83188 & 03188), estimated at around Rmb 1.7 billion and Rmb 440 million respectively in May.

         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 around Rmb 1.4 billion (3.2% and 3.1% of beginning and ending AUM respectively) in May, compared to Rmb 3.5 billion in April.

New Launches and Listings

ChinaAMC Lists 5 Sector ETFs in China

ChinaAMC listed 5 sector ETFs on the Shanghai Stock Exchange, tracking the SSE sector indices of Energy, Financial, Consumer Staples, Materials and Health Care. These indices are composed of the stocks of the relevant sectors which are traded on the Shanghai Stock Exchange.

Vanguard Lists First ETF in Hong Kong

On 15 May 2013, Vanguard listed its first ETF on the Stock Exchange of Hong Kong, namely the Vanguard FTSE Asia ex Japan Index ETF (02805). The ETF tracks the FTSE Asia Pacific ex Japan, Australia and New Zealand Index and levies a TER of 0.38%. This puts the total number of ETFs listed in Hong Kong at 105.

Guotai Lists the First Cross Border ETF in China

On 15 May 2013, Guotai Asset Management listed the first Chinese ETF on the Shanghai Stock Exchange to track the Nasdaq 100 Index, namely the Quotai Nasdaq 100 ETF (513100). This ETF is the third cross border ETF, following those tracking the Hang Seng Index and the Hang Seng China Enterprises Index.

Kyobo AXA Lists an ETF in Korea

On 22 May 2013, Kyobo AXA listed an ETF on the Korea Exchange, namely the Kyobo AXA Power KTB ETF (A176710). The ETF tracks the KTB Index which is calculated with the price of two 3Y KTBs and one 5Y KTB.

GF Fund Lists an ETF in China

On 24 May 2013, GF Fund listed an ETF on the Shanghai Stock Exchange, namely the Guangfa CSI 500 ETF (510510). The ETF tracks the CSI 500 Index which aims to reflect the price performance of small-cap equities listed on the Shanghai and Shenzhen stock exchanges.

Changsheng Lists an ETF in China

On 31 May 2013, Changsheng Fund listed an ETF on the Shanghai Stock Exchange, namely the Changsheng SSE Market Value Top 100 ETF (510700). The ETF tracks the SSE Market Value Top 100 Index which selects 100 stocks with features of largest market cap and highest liquidity within the SSE Large & Mid & Small Cap Index.

The 5 sector ETFs from ChinaAMC and the ETFs from Guotai, GF Fund and Changsheng Fund put the total number of ETFs in China at 63.

Samsung Lists an Inverse ETF in Korea

On 31 May 2013, Samsung Asset Management listed an ETF on the Korea Exchange, namely the Kodex 10Y F-LKTB Inverse (A176950). The ETF tracks the inverse multiple of the daily movements of the F-LKTB Index. The F-LKTB Index is a 10-year treasury-bond futures index.

This ETF and the Kyobo AXA ETF puts the total number of ETFs listed in Korea at 139.

List of ETFs Launched in May 2013

Jackie Choy, CFA, is an ETF Strategist with Morningstar