The most notable development in the ETF industry in Asia this month was the listing of another two RQFII ETFs, which have already reached their quota limits. This is clear evidence of substantial investor demand for these products and we view this as an encouraging development within the RQFII ETF space in general and the A-Share ETF market in particular. On the economic front, economic data out of China continued to show a slowdown in economic activity. This could, in our view, explain to a certain extent the continued weakness in the China A-Share market. The CSI 300 Index fell 5.5% in August, and has declined 18.9% from its nearby high in May.
Economic and Industry News
Chinese Economic Data: CPI Eases Further, FDI Down, Export Growth Slows
· China’s July inflation figure eased further, falling to 1.8% from 2.2% in June. This marks the slowest pace in consumer price growth since January 2010. Food prices (1/3 weighting in CPI) continue to grow at a slower pace, rising 2.4% in July, versus 3.8% in June.
· Foreign Direct Investment (FDI) in China dropped to US$7.6bn (-8.7% YoY) in July, marking a 2-year low. The impact of the eurozone crisis was evident in this figure, as FDI from the Eurozone dropped 27% year-over-year. In the first 7 months of 2012, FDI fell 3.6% to US$66.7bn.
· China’s exports registered growth of 1% in July, much lower than June’s 11.3%. According to a spokesman from the Ministry of Commerce, the sharp drop in export growth in July was attributable to the significant drop in exports to the Eurozone, which declined 16.6%. Meanwhile, exports to other regions grew 5.5%.
· A spokesman from the Ministry of Commerce commented that it may be difficult to reach the export growth target for the year. The government had set an export growth target of 10% earlier this year.
RQFII ETFs Update
According to an announcement from the State Administration of Foreign Exchange (SAFE), it has granted CSOP and E Fund with RQFII quotas of Rmb 5 billion and Rmb 2 billion, respectively. The two ETFs were launched during the month of August. Following these launches, there are now 3 RQFII ETFs listed in Hong Kong.
· E Fund’s RQFII ETF – E Fund CSI 100 A-Share Index ETF (83100) was listed on 27 August 2012. The ETF had assets under management of Rmb 1.9 billion as of the first day of listing. According to a report by the Hong Kong Economic Times, this ETF is applying for additional quota in addition to the original Rmb2 billion it had been granted.
· CSOP’s RQFII ETF – CSOP FTSE China A50 ETF (82822) was listed on 28 August 2012. The ETF had assets under management of Rmb 4.9 billion as of 27th August. A notice of suspension in creation of units was made in light of the fact that the ETF had reached its quota.
We recently published an article discussing the key features of these new RQFII ETFs. Please refer to “Flash: 2 More RQFII ETFs” for a closer look at these new funds.
Both of these ETFs had already reached their RQFII quota limits at listing. We view this as clear evidence of substantial investor demand for these products and we view this as an encouraging development within the RQFII ETF space in general and the A-Share ETF market in particular. However, we again advise investors to approach these products with caution. There is a strong possibility that these ETFs’ market prices will stray from their net asset values in light of the disruption of the unit creation process owing to the fact that both have reached their quotas.
Update on Hong Kong Stock ETFs in China
According to China AMC and E Fund, their Hong Kong Stock ETFs to be listed in China, namely the ChinaAMC Hang Seng Index ETF and the E Fund China Enterprises Index ETF, have raised Rmb 3.59 billion and Rmb 1.62 billion respectively, or Rmb 4.44 billion and Rmb 4.86 billion, respectively when including their respective ETF-linked funds (funds that invest primarily in the ETF), during the initial subscription period. The ETFs will be building positions in the coming months before they are listed on the Shenzhen and Shanghai stock exchanges.
Deutsche Bank ETF Publishes a Summary Impact Regarding the New UCITS Guidelines
On 25 July 2012, The European Securities and Markets Authority (ESMA) released its latest report and consultation paper outlining new guidelines for exchange-traded funds (ETFs). Our European ETF Research Team subsequently highlighted what we believe to be three key “wins” for investors contained within the new guidelines: (1) More explicit guidelines related to sharing revenue generated via securities lending; (2) Increased availability and transparency of benchmark index information; and (3) Cleared labelling (mandatory use of the identifier “UCITS ETF”). In response to the new guidelines, db X-trackers published a summary of the impact these guidelines will have on its ETFs. As db X-trackers ETFs do not currently engage in securities lending and their collateral disclosure arrangements have adhered to high standards, the most meaningful impact of the new guidelines on the firm’s ETF lineup will be the requirement to include the identifier “UCITS ETF” in its funds’ names.
MSCI Index Constituent Changes
According to MSCI, the following index constituent changes were made, effective as of market close on 31 August 2012:
· MSCI China Index: 2 deletions – Dongyue (00189) and Lonking Holding (03339)
· MSCI China A Index: 2 additions - Hangzhou Hikvision Digital Technology A (002415) and Beijing Kangde Xin Composite Material A (002450); and 1 deletion
· MSCI Korea Index: 1 addition – Amoreg (002790); 1 deletion - STX Pan Ocean (028670)
Gold ETFs Coming to the China Exchanges Soon?
According to the Shanghai Securities News, Guotai AMC and HuaAn Funds are in talks with the China Securities Regulatory Commission (CSRC) regarding the launch of physically backed gold ETFs. Currently, all the ETFs listed in China track equity indices. The launch of physically backed gold ETFs in China would further widen the product offering in the Chinese ETF market.
New Launches and Listings
E Fund lists an ETF in Hong Kong
On 27 August 2012, E Fund listed an ETF on the Stock Exchange of Hong Kong, namely the E Fund CSI 100 A-Share Index ETF (83100) which tracks the CSI 100 Index. This is the first ETF in the marketplace that tracks the CSI 100 Index.
CSOP Lists an ETF in Hong Kong
On 28 August 2012, CSOP listed an ETF on the Stock Exchange of Hong Kong, namely the CSOP FTSE China A50 ETF which tracks the FTSE China A50 Index. CSOP Asset Management is an asset management company registered in Hong Kong. The firm is a joint venture set up by China Southern Fund Management (70%) and Oriental Patron Financial Group (30%).
Hanwha Asset Management Lists 7 ETFs in Korea
On 29 August 2012, Hanwha Asset Management listed 4 equity sector ETFs and 3 thematic equity ETFs on the Korea Exchange. The 4 equity sector ETFs track the FnGuide Automobiles+, Shipbuilding and Transportation+, Steel and Metal+ and Chemical+ Indices. The 3 thematic equity ETFs track the FnGuide Cyclical, Defensive and Dividend Indices. These new launches bring the total number of ETFs listed in Korea to 129.
List of Newly Launched ETF in August 2012
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Jackie Choy is an ETF Strategist with Morningstar
