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Asia ETF Roundup (Industry) – April 2020

Oil futures ETFs under the spotlight; Only China had ETF launches within the Asia ex-Japan region

Jackie Choy, CFA 06/05/20

For economic and market news relating to Asian ETFs, please refer to our “Asia ETF Roundup (Market) – April 2020”.

ETF Industry News

Oil Futures ETFs Rolled-over Contracts; S&P Changes Roll-over Schedule; Taiwan Regulator Adds Rules

In light of the volatility that roiled oil markets during the month, some futures-based oil exchange-traded products around the world made changes to their investment strategies. In Hong Kong, the Samsung S&P GSCI Crude Oil ER Futures ETF (03175), which tracks the S&P GSCI Crude Oil Index Excess Return, was holding June 2020 contracts exclusively on 21 April. On 21 April, the manager announced that it would roll the June 2020 contracts to the Sep 2020 contracts, and will hold these September 2020 contracts until the next normal roll-over, citing “in doing so, the Manager is taking a defensive position to protect the interest of the investors in order to avoid potential losses under exceptional circumstances. However, the downside is that investors may not be able to enjoy any upside of holding June 2020 contracts, if the market price of the June 2020 contracts rebound in the future.”. As mentioned in the announcement, the change will lead to a higher tracking difference and tracking error. Further on 3 May, the manager announced it would make further adjustments to the portfolio, investing in October 2020 and December 2020 contracts. This left the split between September/October/December 2020 contracts at around one-third each. The manager also suspended creations and put in place a put options hedging strategy where it purchased put options on September 2020 WTI Futures Contracts, amounting to about 2% of the net asset value of the ETF as of 29 April.

On 28 April, S&P Dow Jones announced an unscheduled roll of oil futures contracts within its family of commodity indices. Its benchmarks rolled from the June 2020 contract to the July 2020 contract after the close on 28 April. Further on 1 May, S&P announced it would roll the July 2020 contracts to August 2020 contracts in the regular roll period in May.

Regulators and related bodies in some markets have taken this opportunity to warn or provide educational materials to investors, warning them of the risks involved in investing in these products. Among them were the Investor and Financial Education Council in Hong Kong and the Taiwan Stock Exchange (TWSE). The Taiwan Stock Exchange also proposed new rules such that if the unit net asset value of an ETF is zero or lower, the TWSE will suspend trading in the ETF and it will be delisted.

Chinese Equity ETF Watch – HK-Domiciled Chinese Equity ETFs See Estimated USD 0.3 billion Net Outflows from Offshore Markets and USD 0.2 billion Net Inflows from Onshore Markets

  • Hong Kong-domiciled ETFs in the China Equity Category saw estimated net outflows of USD 0.3 billion in April, coming mainly from the Hang Seng China Enterprises Index ETF (02828) and the iShares Core MSCI China Index ETF (02801). On the other hand, ETFs in the China Equity – A-Shares Category saw estimated inflows of USD 0.2 billion, coming mainly from the iShares FTSE A50 China Index ETF (02823/82823).
  • For the first four months of 2020, Hong Kong-domiciled ETFs in the China Equity Category and the China Equity – A-Shares Category saw estimated outflows of USD 0.8 billion and USD 1.4 billion, respectively.
  • In the U.S. in April, we saw small net inflows, estimated USD 60 million from the iShares China Large-Cap ETF (FXI) and the iShares MSCI China ETF (MCHI) and an estimated USD 0.3 billion of net outflows from the Xtrackers Harvest CSI 300 China A ETF (ASHR).

New Launches and Listings

13 ETF New Listings in China

  • In April, Chinese ETF providers listed 13 ETFs on the Shanghai Stock Exchange and the Shenzhen Stock Exchange, including 1 broad market ETFs, 4 sector ETF, 5 thematic ETFs, 2 strategic beta dividend ETFs and 1 bond ETF.   
  • These listings put the total number of ETFs listed in China at 314 (95 ETFs on the SZSE, 219 ETFs on the SSE).

ETFs Launched in April 2020 in the Asia ex-Japan Region  

 
About Author Jackie Choy, CFA

Jackie Choy, CFA  

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