[This article previously appeared on our sister site, IndexUniverse.eu .]
Despite the unsettled state of the global economy, Asian ETF markets have come on remarkably strongly in 2012. By the end of the third quarter, there were 485 ETPs listed in the region, up 22 percent from the start of the year, according to Deutsche Bank data.
Meanwhile, total regional ETP assets under management are now around US$116 billion, up from US$90 billion at end 2011. Countries such as Australia, mainland China, Hong Kong and Korea have all seen the launch of significantly more varied and sophisticated products.
So given the fairly brisk pace of developments so far this year, it was a surprise to see relatively little activity in September. Hong Kong had the only new listing, and it involved an entirely new entrant to the market: the investment arm of Indonesian conglomerate Lippo Group. Its Lippo Select HK & Mainland Property ETF invests in Hong Kong-listed stocks involved in real estate within Hong Kong and mainland China.
This product tracks a custom benchmark developed by Lippo and Hang Seng Indexes, which—according to Lippo—shows a high correlation with the Hong Kong and mainland physical property markets. Index construction is based on a fundamental indexing approach, factoring in three-year sales growth, dividend yield, net gearing and three-year capital expenditure growth. The fund uses physical replication and pays annual dividends, with an estimated total expense ratio of 0.75 percent.
RQFII Demand Stays Strong
Other developments in Hong Kong centred around the new renminbi qualified institutional investor (RQFII) ETFs. These are the first physically backed ETFs available to most foreigners that can invest directly in stocks listed in Shanghai and Shenzhen, as discussed in more detail in a recent IndexUniverse.eu feature article.
Demand for these funds has been strong and two of the first three products were granted additional investment quotas in September. E Fund Management’s CSI 100 ETF, which had launched in August with RMB2 billion (US$475 million) and was fully subscribed within one day, was granted a further RMB3 billion quota. And CSOP’s FTSE China A50 ETF, which filled an initial RMB5 billion quota equally quickly, was granted another RMB2 billion.
With a total of RMB17 billion now allocated to RQFII ETFs, there is still one more product pending in the initial batch of launches—an MSCI China A tracker from Harvest, due in the middle of October. Whether this will be as big a success as the first three is not yet certain.
The MSCI China A is a broader benchmark than the FTSE China A50, the CSI 100 or the CSI 300 (as used by China AMC’s RQFII ETF) and has a better sector balance. Financials account for around 30 percent of the index, versus around 62 percent in the A50. However, it is less widely followed and so the product may attract less attention, while the significantly larger basket—540 stocks versus 50 in the A50—could make it more expensive to run or lead to increased tracking difference.
Harvest has been granted an initial RMB2 billion in quota after requesting RMB5 billion, suggesting that regulators are keen to avoid an undersubscribed product in the first round of RQFII ETF launches. However, the fact that E Fund launched at a similar size and managed to secure and fill additional quota quickly indicates that Harvest will have little trouble expanding if investors show interest.