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Asia ETF Roundup (Industry) – July 2018

RQFII ETFs estimated net outflows at Rmb 1.1 billion; 16 ETFs listed in Korea.

Jackie Choy 09/08/18

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

ETF Industry News

China’s Stock Exchanges Bans Foreign Firms, Stapled Securities, and Companies with Weighted Voting Rights from Stock Connect
The Stock Exchange of Hong Kong began to permit the listing of companies with weighted voting rights (WVR) on 30 April 2018 and that the Hang Seng Composite Index announced in May that it would include foreign companies, staples securities and companies with weighted voting rights as eligible securities in the index, effective in Q3 2018. Stocks within the Hang Seng Composite LargeCap Index and the Hang Seng Composite MidCap Index are eligible under the Shanghai Connect and the Shenzhen Connect. The stocks in the Hang Seng Composite SmallCap Index with market cap not less than HK$5 billion are also eligible under the Shenzhen Connect.

Subsequent to the listing of the first WVR listing in Hong Kong, namely Xiaomi (01810), the Shanghai Stock Exchange and Shenzhen Stock Exchange announced their decision on 14 July that foreign company shares, stapled securities, and firms with weighted voting right structures would be temporarily excluded from the list of eligible securities under the Stock Connects. The two exchanges cited their findings from a survey carried out among securities dealers and mainland investors that mainland investors are unfamiliar with these three types of securities, and there was no relevant investor education. In response to the mainland exchanges’ decision, HKEx “will continue to maintain close communications with the Mainland regulators and exchanges with an aim to confirm the timetable for including WVR companies in Stock Connect's Southbound trading”.

Singapore REIT ETFs: Tax Transparency Treatment Effective on 1 July 2018
Effective from 1 July 2018, tax transparency treatment was extended to Singapore-listed REITs ETFs. In essence, under the tax treatment, Singapore-listed REITs ETFs are no longer subject to tax on distributions received from specified income of S-REITs, whereby unitholders of the REIT ETFs are subject to tax based on the investors’ profile (e.g. companies incorporated and residents in Singapore are taxed at their respective tax rates) and qualifying non-resident non-individuals are subject to a 10% withholding tax (from 1 July 2018 to 31 March 2020). For details of the tax transparency treatment, please refer to the “Income Tax Treatment of Real Estate Investment Trust Exchange-Traded Funds” published by the Inland Revenue Authority of Singapore.

Bursa Malaysia Proposes to Relax ETF Short Selling Rules and Restrict L&I ETFs to Qualified Investors
Bursa Malaysia launched a proposal for public consultation on 9 July to expand its Permitted Short Selling framework to allow market makers to short sell all types of ETF (as opposed to limiting to equity-based ETFs currently) and to restrict trading of leveraged and inversed ETFs to qualified investors only. Other proposals included liberalizing interim reporting frequency to a semi-annual basis from a quarterly basis, and requiring ETFs’ immediate announcements in case of changes in methodologies or rules for constructing the benchmarks. The consultation was closed on 23 July 2018, while the details of the consultation can be found here.

RQFII ETF Watch – Net Outflows Totaled Rmb 1.1 billion in July

  • RQFII ETFs recorded estimated net outflows of Rmb 1.1 billion in July (4.0% of beginning AUM), which compares with net inflows of Rmb 0.2 billion in June. This puts YTD estimated net outflows from RQFII ETFs in Hong Kong at Rmb 4.5 billion.
  • Net outflows came mainly from the ChinaAMC CSI 300 Index ETF (83188 & 03188), estimated at Rmb 0.9 billion.
  • The largest A-Share ETF by AUM in Hong Kong, iShares FTSE A50 China Index ETF (02823/82823), recorded an estimated net inflow of Rmb 1.5 billion in July. This narrows YTD estimated net outflows from this ETF to Rmb 5.6 billion.

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New Launches and Listings

CSOP Lists an ETF in Hong Kong
On 18 July, CSOP Asset Management listed an ETF (03053/83053) on the Stock Exchange of Hong Kong. The ETF tracks the 3-month Hong Kong Dollar Interest Settlement Rate, by investing in Hong Kong Dollar-denominated and settled short-term deposits and money market instruments (e.g. commercial papers, certificates of deposits and commercial bills).

This listing puts the total number of ETFs listed in Hong Kong at 188 (124 ETFs, 64 multiple counters, including 22 L&I Products).

Ping An-UOB List 2 ETFs in China
On 13 July, Ping An-UOB Fund Management listed an ETF on the Shanghai Stock Exchange, which tracks the MSCI China A International Minimum Volatility Index. On 20 July, it listed an ETF tracking the MSCI China A International Index.

These listings put the total number of ETFs listed in China at 179 (54 ETFs on the SZSE, 125 ETFs on the SSE).

Hanwha, KB, Mirae, Samsung List 16 ETFs in Korea
On 5 July, Hanwha Asset Management listed 2 ETFs on the Korea Exchange, tracking the KOSDAQ 150 and the KOSPI MidCap, respectively. On 11 July, it further listed an ETF that tracks the F-KOSDAQ150 Index.

On 18 July, KB Asset Management listed 4 ETFs. These ETFs track the FnGuide KQ Momentum&LowVol Index, the FnGuide KQ Momentum&Value Index, the FnGuide Mid-Small Cap Momentum&Value Index (Price Return) and the FnGuide Mid-Small Cap Momentum&LowVol Index, respectively. On 24 July, it listed 2 ETFs, tracking the KOSPI and the WISE Game Theme Index (Price Return), respectively.

On 20 July, Mirae Asset listed 5 ETFs. These ETFs track the KIS 3Y10Y KTB Index(Gross Price Index), the inverse performances of the F-KTB Index, the F-LKTB Index and the F-KTB Composite(3-10) Index, and 2X the inverse performance of the F-KTB Composite(3-10) Index, respectively. On 24 July, it listed an ETF tracking the WISE K-Game Theme Index.

On 24 July, Samsung Asset Management listed an ETF which tracks the FnGuide Game Industry Index.

These listings put the total number of ETFs listed in Korea at 388.

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About Author Jackie Choy

Jackie Choy  

is the director of ETF Research for Morningstar Investment Management Asia