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Asia ETF Roundup (Industry) -December 2017 and January 2018

Net outflows for RQFII ETFs totaled Rmb 3.2 billion in 2017; HK SFC proposes amendments to the Code on Unit Trusts and Mutual Funds and to add rules for actively-managed ETFs

Jackie Choy 08/02/18

For economic and market news relating to Asian ETFs, please refer to our “Asia ETF Roundup (Market) – December 2017 and January 2018”.

ETF Industry News 

HKEx Aims to Expand Existing Listing Rules – Dual-class Shares Coming
The Hong Kong Exchange has determined to add two chapters to the Main Board Listing Rules to facilitate listings of companies from emerging and innovative sectors. The two new chapters are as follows:

  • Allow the listing of biotech issuers which are pre-profit / pre-revenue.
    • Such issuers would also be subject to the same regulatory standards as other applicants to the Main Board, apart from the financial track record requirements.
    • Required to have a minimum expected market capitalisation of HK$1.5 billion.
  • Issuers from emerging and innovative sectors that have WVR (Weighted Voting Rights) structures can list on the Main Board and are subjected to additional disclosure and safeguards.
    • Companies with WVR structures would be required to have a minimum expected market capitalisation of HK$10 billion and, if below HK$40 billion of market capitalisation, would need to meet a higher revenue test of HK$1 billion in the full financial year before listing. 

 

HKEX will proceed with a second round of consultation, which includes rule amendment details, in the first quarter of 2018.

SFC Proposes Amendments to the Code on Unit Trusts and Mutual Funds – Active ETFs to Come
On 18 December 2017, SFC released a comprehensive proposal to seek market participant and public opinion on the amendments made to the Code on Unit Trusts and Mutual Funds (UT Code). As it pertains to the ETF industry, the introduction of actively-managed ETFs is a key development. Key amendments in relation to ETFs include:  

  • Rules for actively-managed ETFs
    • A new chapter (8.10 of the UT Code) will be created specifically to cater to actively-managed ETFs.
    • Daily disclosure for actively-managed ETFs would not be required. However, market makers and participating dealers would be able to obtain portfolio holdings on a daily basis.
  • Clarify requirements for funds with hybrid index tracking strategies through derivatives
    • In addition to complying with Chapter 8.6 (“Unlisted index funds and index tracking exchange traded funds”), if an ETF’s derivatives exceed 50% of NAV based on the commitment approach, it must comply with required under Chapter 8.8 (Structured funds), which stipulates disclosures and collateral requirements.
  • Portfolio concentration requirements
    • The SFC has proposed that any single index constituent that represents more than 20% of the benchmark’s value will be deemed too concentrated.
    • An index that meets the constituent weighting requirements may still be deemed as overly concentrated if the number of constituents in the portfolio is small.
    • However, under special circumstances, the largest single constituent can still take up to 35% of the portfolio.
  • Codification of market makers’ requirements for ETFs
    • SFC proposed that a manager of SFC-authorized passive ETFs is generally expected to use its best endeavors to have arrangements in place so that there is at least one market maker for each trading counter of the ETF who will give not less than three months’ notice prior to terminating market-making arrangements.
  • Enhancement of disclosure requirements for securities financing transactions
    • SFC proposed that securities transactions exceeding 50% of NAV should have information on all the securities financing transactions undertaken to investors on an ongoing basis through the ETF’s website or other acceptable channels.
  • Listed and unlisted share class for index funds and passive ETFs
    • Subjected to SFC consultation, ETFs/index funds can have unlisted and/or listed share classes provided that the dealing arrangements and risks associated with both share classes are clearly disclosed in the offering documents.

 

Details of SFC’s Consultation Paper on Proposed Amendments to the Code on Unit Trusts and Mutual Funds can be found on the SFC website.

iShares FTSE A50 China Index ETF Completes Transition to “Physical Replication” and Changes Base Currency to Renminbi
On 1 December 2017, the manager of the iShares FTSE A50 China Index ETF (02823/82823) announced that the ETF has completed its transition from a “synthetic representative” strategy to a “physical representative” strategy, whereby its holdings of A Shares and Physical A Share ETFs (for cash management and contingency purposes) will comprise 90% or more of its net asset value on an ongoing basis. Along with the completion of the transition, the base currency of the ETF was changed from Hong Kong dollars to Renminbi.  The fund will now only allow for cash redemption in Renminbi. Both arrangements have an effective date on 1 January 2018.

RQFII ETF Watch – NetOutflows Totaled Rmb 3.2 billion in 2017

  • RQFII ETFs recorded estimated net outflows of Rmb 1.5 billion in December 2017 (4.2% of beginning and ending AUM), followed by another RMB 0.3 billion of estimated outflows in January 2018 (1.0% of beginning and ending AUM). This compares with net outflows of Rmb 1.6 billion in November. For 2017, RQFII ETFs experienced estimated net outflows of Rmb 3.2 billion.
  • Inflows for December and January came mainly from the ChinaAMC CSI 300 Index ETF (83188/03188), estimated at Rmb 0.8 billion. These inflows were overwhelmed by net outflows from other RQFII ETFs, which came mainly from the CSOP FTSE China A50 (82822/02822)--estimated at Rmb 2.2 billion.
  • The largest A-Share ETF by AUM in Hong Kong, iShares FTSE A50 China Index ETF (02823/82823), recorded virtually no flows in December. The fund witnessed significant outflows, estimated at RMB 3.6 billion, in January. For the year 2017, the estimated total net outflows from the iShares FTSE A50 China Index ETF amounted to Rmb 6.7 billion.

 

New Launches and Listings

Tebon, Invesco Delist 2 Money Market Funds in China
Invesco Great Wall Fund Management and Tebon Fund Management each delisted a money market fund from the Shanghai Stock Exchange on 25 December 2017 and 25 January 2018, respectively.

China Universal Delists 3 ETFs in Hong Kong
China Universal Asset Management delisted its C-Shares CSI 300 Index ETF (83008/03008), C-Shares CSI Consumer Staples Index ETF (83107/03107), and C-Shares CSI Healthcare Index ETF (83132/03132) on 15 January 2018. The low trading volume and relatively small net asset values of the funds were cited as the main reasons for the delistings.

Affin Lists a Gold ETF in Malaysia
On 6 December 2017, Affin Hwang Asset Management listed an ETF on the Bursa Malaysia, which tracks the LBMA Gold Price AM Index. This ETF is Malaysia’s first commodity ETF. The last time an ETF was listed in Malaysia was December 2015.

KB, HI, Samsung and Hanwha List 12 ETFs in Korea
On 8 December 2017, KB Asset Management listed five ETFs on the Korea Exchange.

They track the KOSPI 200 IT Index, the KOSPI 200 Financials Index, the KOSPI 200 Heavy Industries Index, the KOSPI 200 Energy & Chemicals Index and the KOSPI 200 Steels & Materials Index, respectively.

On 13 December 2017, HI Asset Management, Samsung Asset Management and Hanwha Asset Management each listed an ETF on the Korea Exchange, which track the KRX ESG Leaders 150 index, the CSI 300 Index and the NASDAQ 100 Technology Sector Index, respectively.

On 22 December 2017, KB Asset Management listed four ETFs on the Korea Exchange. They track the KOSPI 200 Industrials Index, the KOSPI 200 Consumer Staples Index, the KOSPI 200 Constructions Index, and the KOSPI 200 Consumer Discretionary Index, respectively.

These listings put the total number of ETFs listed in Korea at 321.

Capital Lists 3 Bond ETFs in Taiwan
On 15 December 2017, Capital Investment Trust listed three bond ETFs on the Taipei Exchange, which track the BofA Merrill Lynch 15+ Year US Technology & Electronics Index, the BofA Merrill Lynch 10+ Year US Banking Index and the BofA Merrill Lynch 15+ Year US Telecommunications Index.

These listings put the total number of ETFs listed in Taiwan at 108 (10 ETFs in TPEX, 98 ETFs in TWSE).

Pingan Lists an ETF in Hong Kong
On 29 December 2017, Pingan of China Asset Management listed an ETF on the Stock Exchange of Hong Kong, which tracks the CSI PingAn 5-10y CGB Benchmark Index. 

These listings put the total number of ETFs listed in Hong Kong at 172 ETFs (126 ETFs, 46 multiple counters, including 27 L&I products).

ChinaAMC, CCB, Pingan-UOB, GF, ICBC List 5 ETFs In China
On 4 January 2018, China Asset Management listed an ETF on the Shenzhen Stock Exchange, which tracks the Growth Enterprise Index.

On 15 January 2018, CCB Principal Asset Management listed an ETF on the Shanghai Stock Exchange, which tracks the SSE 50 Index.

On 19 January 2018, GF Fund listed an ETF on the Shanghai Stock Exchange, which tracks the CSI Media Index.

On 19 January 2018, ICBC Credit Suisse Asset Management listed an ETF on the Shenzhen Stock Exchange, which tracks the Growth Enterprise Index.

On 26 January 2018, Pingan-UOB Fund Management listed an ETF on the Shanghai Stock Exchange, which tracks the CSI 300 Index.

These listings put the total number of ETFs listed in China at 168 ETFs (54 ETFs on the SZSE, 114 ETFs on the SSE).

 

About Author Jackie Choy

Jackie Choy  

is the director of ETF Research for Morningstar Investment Management Asia