Asia ETF Roundup (Industry) – August 2020

On 26 August, Vanguard announced that it will seek to implement an orderly exit from its ETF business in Hong Kong. Vanguard is considering different options including appointing a new manager for its HK-domiciled ETFs or terminating and delisting them. According to the announcement, depending on the final decision, implementation could take up to 24 months.

Vanguard first listed its ETFs in Hong Kong in 2013 and currently manages 6 ETFs in Hong Kong with assets under management ranging from US$32 million to US$214 million as of end of August 2020. The ETFs offer exposure to stocks in China, Japan, Asia ex-Japan (broad market and high dividend yield), developed Europe and the U.S. Vanguard stated in the announcement that “the decision to exit its ETF business in Hong Kong in order to enable it to channel its human and financial capital in the region towards initiatives that are more closely aligned with its strategic focus and provide a long-term platform for scalable growth.” According to various media reports, Vanguard has been ploughing resources into its China growth and development plans in recent years and Vanguard will transfer its regional headquarters to Shanghai. In April 2020, Alibaba’s Ant Group and Vanguard launched a joint venture, Bangnitou, a discretionary investment advisory service aimed at consumers in mainland China.

Hong Kong-Mainland China ETF Cross-listing Scheme Gets Green Light

On 28August, the Hong Kong Securities and Futures Commission authorized two local-listed ETFs to feed into two Shenzhen-listed ETFs. Meanwhile, the China Securities Regulatory Commission approved the listing of two ETFs investing in two Hong Kong-listed ETFs on Shenzhen Stock Exchange under the same scheme. This is in-line with Ignites Asia’s report last month. According to the SFC and CSRC, these ETFs will each invest 90% or more of their net assets in their counterpart via the Renminbi Qualified Foreign Institutional Investor (RQFII) status and the Qualified Domestic Institutional Investor (QDII) status.

The pilot scheme aims to be “a testament to the deepening of cooperation between the Mainland and Hong Kong capital markets”, said the SFC, which may provide local investors with more ETF investment choices through a wider cross-border market access. According to the CSRC announcement, the ETFs listing in Shenzhen will be feeding into ETFs that track the Hang Seng China Enterprises Index and the S&P New China Sectors (A-shares Capped) Index.

Hang Seng Index Revealed WVR and Secondary-Listing Constituents; Change in Total Number of Constituents Might Come

In May 2020, Hang Seng Indexes announced it would include weighted voting right companies (WVRs) and secondary-listed companies as eligible stocks in the Hang Seng Index (HSI) and the Hang Seng China Enterprises Index (HSCEI). On 14 August, Hang Seng Indexes announced the results of its August review. With effect from 7 September, Alibaba (09988), Xiaomi (01810) and WuXi Biologics (02269) will join the HSI with indicative weightings of 5.0%, 2.7% and 1.7% respectively, totaling 9.4%. Hang Seng Indexes also revealed that it is undertaking a holistic review of the HSI, including the composition of the index, selection of and the number of constituents, weighting of the constituents and sectors, etc. The proposed recommendation would be reported to the committee in the next six months. In particular, it was mentioned that “the number of constituents of the Hang Seng Index may increase during this period”.

Constituent changes at the August Index review (total constituents kept at 50):

Hang Seng Index

• Additions: Alibaba (09988), Xiaomi (01810), WuXi Biologics (02269) 
• Removals: Sino Land (00083), Want Want China (00151), China Shenhua Energy (01088)
  
  

HSCEI

• Additions: Alibaba (09988), Xiaomi (01810), Meituan Dianping (03690)
• Removals: Sinopharm Group (01099), BYD (01211), CITIC Securities (06030)
  
  

With this review of the HSI, the pro forma weighting in financials will be reduced to 45.3% from 49.4% while the weighting in information technology will be increased to 17.7% from 10.0%.

Chinese Equity ETF Watch – HK-Domiciled ETFs and U.S. Domiciled ETFs See Net Outflows

• Hong Kong-domiciled ETFs in the China Equity Category saw estimated net outflows of USD 13 million in August. The esitimated net outflows of USD 127 million from the iShares Core MSCI China ETF (02801) netted off the estimated net inflows of USD 93 million from the Hang Seng China Enterprises ETF (02828).
• Hong Kong-domiciled ETFs in the China Equity - A-Shares Category saw estimated net outflows of USD 143 million in August, coming mainly from the estimated net outflow of USD 77 million from the CSOP FTSE China A50 ETF (02822/82822) and USD 51 million from the iShares FTSE A50 China ETF (02823/82823).
• Hong Kong-domiciled ETFs in the China Equity Category and the China Equity – A-Shares Category saw estimated year-to-date outflows of USD 0.7 billion and USD 1.6 billion, respectively.
• In the U.S. in August, we estimate net outflow of USD 0.5 billion from Chinese equity ETFs. The Xtrackers Harvest CSI 300 China A ETF (ASHR) saw net outflows of USD 0.3 billio, followed by the iShares China Large-Cap ETF (FXI) and the KraneShares CSI China Internet ETF (KWEB) with USD 0.2 billion and USD 0.1 billion of estimated net outflows, respectively.
  
  

New Launches and Listings

China: 9 ETF New Listings

• Chinese ETF providers listed 9 ETFs on the Shanghai Stock Exchange and Shenzhen Stock Exchange, including 6 broad market ETFs, a thematic ETF, a bond ETF and a gold ETF.  
• These listings put the total number of ETFs listed in China at 350 (105 ETFs on the SZSE, 245 ETFs on the SSE).
  
  

Hong Kong: 3 ETF New Listings and 4 Delistings

• Global X listed two thematic ETFs tracking indices with China robotics & AI and China semiconductor exposures. CSOP listed an ETF tracking the Hang Seng TECH Index.
• Two ETFs managed by Value Partners had their last trading day during the month, namely the Value China ETF (03046) and Value China A-Share ETF (03095/83095). These two ETFs were listed in December 2009 and March 2015, respectively. Small asset size was cited as main factor in determining the termination of the two ETFs. After these delistings, Value Partners only manages one ETF, namely the Value Gold ETF (03081/83081/09081) listed on the Hong Kong exchange.
• A pair of leveraged/inverse products managed by E Fund had their last trading day during the month. These products track the -1x and 2x of the daily performance of the Hang Seng Index and were listed in March and August 2017, respectively. Small asset size was cited as main factor in determining the termination of the pair of leveraged/inverse products.
• Including the above delisting and listings, the total number of ETFs in Hong Kong stands at 217 (138 ETFs and 79 multiple counters, including 28 leveraged and inverse products).
  
  

India: 1 ETF New Listing

• ICICI Prudential Asset Management listed a strategic-beta ETF that offers India equities.
  
  

South Korea: 6 ETF New Listings

• South Korean ETF providers listed 6 ETFs on the Korea Exchange, including 4 broad market equity ETF, two futures-based ETFs.
• These listings put the total number of ETFs listed in South Korea at 449.
  
  

Taiwan: 2 ETFs New Listings

• Taiwan ETF providers listed 2 bond ETFs on the Taipei Exchange.
• These listings put the total number of ETFs listed in Taiwan at 222, of which 99 are bond ETFs.
  
  

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