Asia ETF Roundup (Industry) – May 2021

Biden amends Executive Order; HSI increases number of constituents to 58; ChinaAMC Taking Over Manager Role for BMO’s Hong Kong-listed ETFs; Shanghai-Korea ETF Connect.

Jackie Choy, CFA 10.06.2021
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For economic and market news relating to Asian ETFs, please refer to our “Asia ETF Roundup (Market) May 2021”.

 

ETF Industry News

Hang Seng Index May 2021 Review – Increase to 58 Constituents

On 21 May, Hang Seng Index released the result of the May 2021 index review of its benchmark series. Recall that the Hang Seng Index consultation results were announced in March 2021 and took effect on 7 June 2021 whereby the total number of constituents would be increased to 80 by mid-2022, an 8% weighting cap would be adopted on all HSI constituents and constituents would be selected across 7 industry groups. At this index review, the total number of constituents of the Hang Seng Index will be increased to 58 from 55 by adding three companies. Along with this index review, the number of constituents in the Hang Seng China Enterprise Index and the Hang Seng TECH Index will be reset to 50 and 30 respectively. The full index review result, along with the latest weightings of the constituents in the Hang Seng Index can be viewed here.

 

Constituent changes at the May Index review:

Hang Seng Index

  • Additions: Xinyi Solar (00968), BYD (01211) and Country Garden Services (06098)

 

HSCEI

  • Additions: BYD (01211) and Evergrande Property Services (06666)
  • Removals: Guangdong Investment (00270), China Unicom (00762) and China Tower (00788)

 

Hang Seng TECH Index

  • Additions: Autohome (02518) and Bilibili (09626)
  • Removals: ZTE (00763), Fit Hon Teng (06088) and Archosaur Games (09990)

 

ChinaAMC Taking Over As Manager of BMO’s Hong Kong-listed ETFs

Effective from 28 May 2021, BMO retired as manager of the seven BMO Hong Kong-listed ETFs and ChinaAMC will be the new manager. Meanwhile, Mackenzie Financial Corporation was appointed as investment delegate for these ETFs. As a result of the change of manager, the names of the seven ETFs will be changed as follows:

  • BMO Asia High Dividend ETF to ChinaAMC Asia High Dividend ETF (03145)
  • BMO Asia USD Investment Grade Bond ETF to ChinaAMC Asia USD Investment Grade Bond ETF (03141/09141)
  • BMO Hong Kong Banks ETF to ChinaAMC Hong Kong Banks ETF (03143)
  • BMO MSCI Asia Pacific Real Estate ETF to ChinaAMC MSCI Asia Pacific Real Estate ETF (03121)
  • BMO MSCI Europe Quality Hedged to USD ETF to ChinaAMC MSCI Europe Quality Hedged to USD ETF (03165)
  • BMO MSCI Japan Hedged to USD ETF to ChinaAMC MSCI Japan Hedged to USD ETF (03160)
  • BMO NASDAQ 100 ETF to ChinaAMC NASDAQ 100 ETF (03086/09086)

The full announcement is available here. With this change, ChinaAMC has increased its menu of ETFs on the Hong Kong Exchange to 18 ETFs from 11 ETFs, bringing total assets under management to US$3.86 billion as of 31 May 2021.

 

HKEx’s Fee Waivers for Fixed Income and Money Market ETFs

On 31 May, the Hong Kong Exchanges announced they would introduce fee waivers for Hong Kong-listed fixed income and money market ETFs. The trading tariff of HK$0.50 and minimum stock settlement fee payable by each Clearing Participant or Clearing Agency Participant for each Exchange Trade or crossed Exchange Trade cleared and settled through CCASS will be waived for the transactions of the 29 trading counters of fixed income and money market ETFs, effective from 31 May.

HKEx believes that the new fee waivers will reduce investors’ costs for fixed income and money market ETFs transactions. They are the latest initiative of the exchange to enhance its ETF market structure and drive liquidity to Hong Kong-listed ETFs. The full announcement can be found here.

 

Shanghai-Korea ETF Connect MOU Signed

On 11May 2021, Shanghai Stock Exchange and Korea Exchange reached an agreement on the launch of Shanghai-Korea ETF Connect, a scheme for establishing ETF market access between two exchanges. It also facilitates partnerships in several aspects, spanning from index development to bond markets.

The Shanghai Stock Exchange cited that the scheme between the two exchanges will actively launch ETF products with competitive edges in each other’s markets and enhance their respective markets. Shanghai Stock Exchange believed that these initiatives could deepen ties of the two exchanges and encourage further partnership between two countries’ capital markets and accelerate regional financial coordination. The Chinese version of the announcement can be viewed here.

 

Updates on the U.S. Executive Order – President Biden Signed an Amended Executive Order

Executive Order Updates

On 3 June, U.S. President Joe Biden signed an Executive Order to amend the Executive Order 13959 which expanded the scope and added a number of Chinese Military-Industrial Complex Companies to the original list of sanctioned companies. The updated list of 59 sanctioned companies included many of those from the original list, in particular, the larger listed ones by market-cap, e.g. China Mobile, CNOOC, etc. The list of the 59 Chinese Military-Industrial Complex Companies can be found here.

The prohibitions on transactions in the sanctioned stocks will become effective on 2 August and U.S. persons will have until 3 June 2022 to divest from the sanctioned companies. The Office of Foreign Assets Control updated the list of FAQs on their website, of which FAQ 902 stated that:

 “U.S. persons are not prohibited from providing investment advisory, investment management, or similar services to a non-U.S. person, including a foreign entity or foreign fund, in connection with the non-U.S. person’s purchase or sale of a covered security, provided that the underlying purchase or sale would not otherwise violate E.O. 13959, as amended.

This should help clarify some ambiguities on how the U.S. fund companies’ non-U.S. operations could be affected by the Executive Order.

Index Provider Updates

FTSE Russell and MSCI have issued announcements that they are aware of the amended Executive Order. The firms stated that they would not implement some of the changes that were scheduled for early June and would make further announcements on index changes relating to the amended Executive Order.

 

Chinese Equity ETF Watch – Hong Kong-Domiciled Onshore ETFs See Estimated Net Inflows of USD 0.3 billion; US-Domiciled ETFs See Estimated Net Inflows of USD 0.9 billion

  • Hong Kong-domiciled ETFs in the China Equity Category saw a small net inflow, estimated at USD 17 million in May. Net inflows from the Hang Seng China Enterprises Index ETF (02828/82828), estimated at USD 94 million were partially offset by net outflows from the CSOP S&P New China Sectors ETF (03167/09167/83167), estimated at USD 85 million.
  • Hong Kong-domiciled ETFs in the China Equity - A-Shares Category saw estimated net inflows of USD 345 million in May, coming mainly from the ChinaAMC CSI 300 ETF (03188/83188), and iShares FTSE A50 China ETF (02823/82823) which recorded net inflows estimated at USD 223 million and USD 131 million, respectively.
  • Hong Kong-domiciled ETFs in the China Equity Category have seen estimated year-to-date outflows of USD 311 million while Hong Kong-domiciled ETFs in the China Equity – A-Shares Category saw estimated year-to-date inflows of USD 24 million.
  • In the U.S. in May, we estimated total net inflows of USD 0.4 billion from the iShares China Large-Cap ETF (FXI) and the iShares MSCI China ETF (MCHI). The Xtrackers Harvest CSI 300 China A ETF (ASHR) and the KraneShares CSI China Internet ETF (KWEB) each saw estimated net inflows of USD 0.2 billion.

 Flow from Equity ETFS China

 

New Launches and Listings

China: 18 New ETF Listings; 1 Delisting

  • Chinese ETF providers listed 18 new ETFs on the Shanghai Stock Exchange and the Shenzhen Stock Exchange. These include 11 thematic ETFs, 5 ETFs tracking the Hang Seng Tech Index, 1 ETF tracking the CHINEXT300 Index and 1 strategic-beta ETF.
  • Fullgoal HangSeng China Enterprises ETF had its last trading day on 18 May.
  • Including the above listings and delisting, the total number of ETFs in China stands at 466 (149 ETFs on the SZSE, 317 ETFs on the SSE).

Hong Kong: 5 ETF New Listings; 6 Delistings

  • Hong Kong ETF providers listed 5 new ETFs on the Hong Kong Exchange. These include 2 thematic ETFs, 2 leveraged/inverse products and 1 broad market ETF.
  • Vanguard’s 6 Hong Kong-domiciled ETFs had their last trading day on 10 May (18 trading counters in total).
  • BlackRock announced the termination of the iShares Core KOSPI 200 ETF (03170/83170/09170). The fund’s last trading day will be 18 June 2021. The fund’s small size was cited as the main reason for its termination. As of 17 May, it had USD 9.9 million in assets under management.
  • These listings and delistings put the total number of ETFs listed in Hong Kong at 225 (148 ETFs and 78 multiple counters, including 26 leveraged/inverse products).

South Korea: 11 ETF New Listings

  • Korean ETF providers listed 11 ETFs on the Korea Exchange. These include 9 thematic ETFs and 2 broad market ETFs.
  • These listings put the total number of ETFs listed in South Korea at 480.

Taiwan: 3 ETF New Listings; 1 Delisting

  • Taiwan ETF providers listed 3 ETFs on the Taiwan Stock Exchange and Taipei Exchange, including 2 bond ETFs and 1 thematic ETF.
  • Franklin Templeton SinoAm 1-3 Years US Treasury Bond ETF had its last trading day on 12 May.
  • These listings and delisting put the total number of ETFs listed in Taiwan at 222, of which 98 are bond ETFs.

 

ETFs Launched in May 2021 in the Asia ex-Japan Region

ETF Launched in May

 

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About Author

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

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