Asia ETF Roundup – May 2012

New ETF launches resumed in May as 14 new ETFs were listed in the Asia ex-Japan region. Notable new launches included the first China cross-market ETFs. Meanwhile, economic data indicated a slowdown in the Chinese economy.

Jackie Choy, CFA 07.06.2012
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In May, ETF launches once again turned active, with 14 new ETFs getting listed on stock exchanges in China, Hong Kong, South Korea and Taiwan. This puts the number of new ETFs listed in the region on a year-to-date basis at 54--compared to around 100 listings for all of 2011.

Meanwhile, on the economic front, recent Chinese economic data has suggested the Chinese economy may be facing a slowdown as the European debt crisis has flared up once again and various Asian stock markets have plummeted. In an attempt to energize the Chinese economy, the PBOC announced that it would once again lower the reserve requirement ratio for domestic banks with the aim of boosting loan growth.

Industry News

China Lowers Reserve Requirement Ratio
On 12 May 2012, the People’s Bank of China (PBOC) announced that it would lower the reserve requirement ratio (RRR) by 50bps, effective from 18 May 2012. The PBOC last lowered the RRR in February 2012 and December 2011, by 50bps each time. The 50bps cut this time will drop the RRR for large financial institutions to 20% and for medium- and small-sized financial institutions to 16.5%. It is estimated that the cut will release ~Rmb400bn (US$63bn) of capital into the market.

Chinese Economic Data: CPI Easing, FDI Down, Trade Growth Slowing

  • China’s April CPI reading eased to 3.4% from 3.6% in March. The drop was driven mainly by lower food prices.
  • Foreign direct investment (FDI) inflows dropped to US$8.4bn in April 2012 (-0.7% YoY), marking the sixth straight month of negative growth. Over the first 4 months of 2012, FDI fell 2.4% to US$37.9bn. The biggest drop came from European investment, which was down 27.9% YoY for the first 4 months, amid the growing concerns tied to the Eurozone debt crisis.
  • China’s trade surplus widened to US$18.4bn in April from US$5.3bn in March. Notably, China’s exports slowed in April, growing by just 4.9% YoY, weaker than the 8.9% expansion in March.

Hang Seng Index and Hang Seng China Enterprises Index Constituent Changes
According to an announcement from Hang Seng Indexes Company Limited, effective from 4 June 2012, Sands China (01928) has been added to the Hang Seng Index. As of 4 June 2012, Sands China had a weight of 1.08% within the Hang Seng Index (HSI). This increases the number of continents for the HSI from 48 to 49.

The Hang Seng China Enterprises Index (HSCEI) also made some changes to its constituents, with New China Life Insurance (01336) replacing China Railway Construction (01186), effective from 4 June 2012. New China Life Insurance had a weight of 0.82% within the index as of 4 June 2012 and the number of index constituents remains at 40.

These changes were made during the indices’ quarterly review.

MSCI China A Index Constituent Changes
According to MSCI, effective as of the market close on 31 May 2012, 15 constituents were added to and 38 constituents were deleted from the MSCI China A Index. The three largest additions to the MSCI China A Index were New China Life Insurance A (661336), Industrial Securities Co A (601377) and Yonghui Superstores Co A (601933).

Australia Cuts Rates by Another 25bps
On 5 June 2012, The Reserve Bank of Australia (RBA) announced a 25bps cut in the cash rate to 3.50%, effective 6 June 2012. The RBA last cut the cash rate by 50bps in May 2012. The RBA commented that given “modest domestic growth and a weaker and more uncertain international environment, the outlook for inflation afforded scope for a more accommodative stance of monetary policy”. There is an ETF tracking the Australia Overnight Money Market Total Return Index, namely the db X-trackers Australian Dollar Cash ETF (03026, listed in Hong Kong and Singapore).

India’s GDP Growth Slows to 9-Year Low at 5.3%
India announced that GDP figures for the months of January to March 2012 registered growth of 5.3%. This marks a sharp slowdown versus last year’s 9.2% as the agricultural and manufacturing sectors suffered steep declines. This is also the slowest growth in GDP in 9 years. For the whole 2011-12 financial year, GDP growth slid to 6.5%, marking the slowest pace since 2002-03.

Pakistan Sets Out Minimum Requirements for ETFs
On 8 May 2012, the Securities and Exchange Commission of Pakistan issued a circular and laid out the minimum requirements for ETFs to be managed by asset management companies, including details on investment restrictions, issuance and redemption of units, dealings of ETF units, etc. We view this as an important step for a stock exchange in an emerging market. We believe ETFs should help increase the market depth of the local exchange and could act as a channel for local investors to access foreign markets.

New Launches and Listings

Bosera Funds Lists an ETF on the Shanghai Stock Exchange
On 11 May 2012, Bosera Funds listed an ETF on the Shanghai Stock Exchange, namely the Bosera SSE Natural Resource Index ETF (510410), tracking the SSE Natural Resource Index. The index tracks the performance of 50 large-cap natural resources stocks. This is Bosera Funds’ third ETF listed in China.

Harvest Lists an ETF on the Shenzhen Stock Exchange
On 11 May 2012, Harvest Fund listed an ETF on the Shenzhen Stock Exchange, namely Harvest SME-ChiNext 400 Index ETF (155918), tracking the SME-ChiNext 400 Index. The index tracks the performance of 400 companies listed on the SME Board and ChiNext market in the Shenzhen Stock Exchange. The ChiNext market offers a capital platform for enterprises engaged in independent innovation and other growing ventures.

Yuanta Lists an ETF on the Taiwan Stock Exchange
On 11 May 2012, Yuanta Securities Investment listed an ETF on the Taiwan Stock Exchange, namely the Polaris/P-shares SSE50 Securities Investment Trust Fund. The ETF tracks the SSE50 Index, which measures the performance of the largest 50 stocks on the Shanghai Stock Exchange. While the ETF claims itself as an ETF “directly” invest in the Chinese A-Share market, in fact, only ~76% of AUM is invested in A-Shares while the remaining 24% is invested in FTSE China A50 Index futures. Creation and redemption is only made on a cash basis.

Mirae Asset Lists 5 ETFs on the Korea Exchange
On 14 May 2012, Mirae Asset Global Investments listed 5 ETFs on the Korea Exchange. One of the ETFs tracks the money market (KIS MSB 3M(Total Return) Index) and the other 4 ETFs track the automobiles, chemicals, securities and software sectors of the FnGuide Indices.

KB Asset Management Lists an ETF on the Korea Exchange
On 23 May 2012, KB Asset Management listed an ETF on the Korea Exchange. The ETF tracks the FnGuide-KIS Top5 Group & 10Y KTB Mix Index. After this listing, the Korean ETF market now has 121 ETFs.

Sensible Asset Management Lists 3 ETFs on the Stock Exchange of Hong Kong
On 28 May 2012, Sensible Asset Management, the ETF arm of Value Partners, listed 3 ETFs on the Stock Exchange of Hong Kong. The 3 ETFs track the FTSE Value-Stocks Japan, Korea and Taiwan Indices. Index constituents must pass a value screening process which is rules-based and includes valuation, quality, and contrarian screening factors. All 3 ETFs are physical replication ETFs.

China Cross-Market ETFs Go Live
The first two China cross-market ETFs have gone live. On 28 May 2012, Harvest Fund and Huatai-PineBridge listed their respective cross-market ETFs on the Shenzhen Stock Exchange and Shanghai Stock Exchange, respectively. Both the ETFs track the CSI 300 Index.

List of Newly Launched ETF in May 2012

Jackie Choy is an ETF Strategist with Morningstar

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Jackie Choy, CFA  is the Director of Passive Investment Ratings, Global Manager Research.

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