Asia ETF Roundup (Industry) – May 2015
Mainland-Hong Kong Mutual Recognition of Funds starting on 1 July; RQFII ETFs swing to net inflows at Rmb 0.2 billion
For economic and market news relating to Asian ETFs, please refer to our “Asia ETF Roundup (Market) – May 2015”.
ETF Industry News
Mainland-Hong Kong Mutual Recognition of Funds Starting on 1 July; ETF Included
The most noteworthy news of the month in the Asian fund industry was the announcement of the Mainland-Hong Kong Mutual Recognition of Funds initiative, which will be implemented on 1 July 2015. Through the MRF, the CSRC and the SFC will allow Mainland and Hong Kong funds that meet its eligibility requirements to follow streamlined procedures to obtain authorization or approval for offering to retail investors in each other’s market. At the initial stage, only general equity funds, bond funds, mixed funds, unlisted index funds and physical index-tracking ETFs would be eligible under the MRF.
As stipulated in the circular, eligible funds, among other requirements, are required to be established for more than one year with a minimum fund size of not less than Rmb 200 million and primarily invest in non-Hong Kong market (for Mainland funds)/non-Mainland market (for Hong Kong funds).
Further details of the MRF can be found in the circulars released by the regulators:
CSRC Circular (in Chinese only)
Chile Granted with Rmb 50 Billion RQFII Quota
During the month, Chile was granted RQFII quota (Rmb 50 billion) which will enable qualified institutional investors in Chile to invest directly into the China securities market. Other countries with RQFII quota include: Hong Kong (Rmb 270 billion), Taiwan (Rmb 100 billion; received a favourable response from the Chinese government but have not yet been officially granted quota), the UK (Rmb 80 billion), Singapore (Rmb 50 billion), France (Rmb 80 billion), South Korea (Rmb 80 billion), Germany (Rmb 80 billion), Qatar (Rmb 30 billion), Canada (Rmb 50 billion), Australia (Rmb 50 billion), Switzerland (Rmb 50 billion) and Luxemburg (Rmb 50 billion).
FTSE Russell Launched New Transitional Indices to Accommodate China A-Shares
On 26 May 2015, FTSE Russell announced two new Emerging Markets indexes, which include China A-Shares at a weighting equivalent to total R/QFII allocations. According to FTSE, the A-Share weighting will increase. The initial weight in the FTSE Emerging inclusion indexes will be approximately 5%, and is expected to increase to 32% when A-Shares are fully available to international investors. At that point, the inclusion indexes will merge seamlessly with the standard FTSE Emerging Markets indexes when China A Shares fully meet FTSE's country classification criteria for emerging markets. This is a step taken by FTSE in the transition to include China A-Shares in global indexes.
Further details can be found in FTSE’s press release and white paper. Meanwhile, market participants are also waiting on the outcome of MSCI’s annual review, to be announced on 9 June 2015 (shortly after 11:00 p.m. Central European Summer Time), on whether China A-Shares would be included into MSCI’s emerging markets indices. However, recently, media reports have stated that MSCI is not bound to a June-June schedule on A-Share review, so it may be some time before they share an update.
Subsequently, on 2 June 2015, Vanguard announced to switch indices in a number its index funds, in particular, the world’s largest emerging markets ETF, Vanguard FTSE Emerging Markets ETF (VWO, listed in the U.S.), will switch its benchmark index from the FTSE Emerging Index to the FTSE Emerging Markets All Cap China A Inclusion Index, which will initially comprise around 6% of the fund’s assets in onshore China A-shares. Vanguard will implement the changes toward the end of the year, with a transition period of around a year for the emerging markets funds.
India Revamps CPSE ETF
According to The Economic Times in India, the Ministry of Finance is planning to launch a revamped and retail investor-friendly CPSE ETF by October. The CPSE ETF was listed in April 2014, constructed in order to facilitate the Indian Government’s initiative to dis-invest some of its stakes in selected Central Public Sector Enterprises (CPSEs) through the ETF route. The manager, Goldman Sachs, is looking into revamping the ETF by changing the unit size smaller to encourage retail investors’ participation. According to the report, the Employees' Provident Fund Organisation (EPFO) and the National Pension System (NPS) are expected to invest into the revamped CPSE ETF.
RQFII ETF Watch – Swing to Net Inflows at Rmb 0.2 billion
· In May, we saw RQFII ETFs swung to net inflows, estimated at Rmb 0.2 billion (0.4% of beginning and ending AUM), after Rmb 11.3 billion of net outflows in April 2015. YTD total net outflows were estimated at Rmb 19.2 billion.
· The majority of the net inflows during the month came from the CSOP FTSE China A50 ETF (82822 & 02822), estimated at Rmb 2.2 billion. On the other hand, the majority of the net outflows came from the bond ETFs - the CSOP China 5-Year Treasury Bond ETF (83199 & 03199), estimated at Rmb 1.5 billion, followed by the CSOP China Ultra Short-Term Bond ETF (83122 & 03122), estimated at Rmb 0.6 billion.
· The largest A-Share ETF by AUM in Hong Kong, iShares FTSE A50 China Index ETF (02823), continued to see net outflows, estimated at Rmb 3.8 billion in May. YTD total net outflows were estimated at Rmb 33.3 billion.
New Launches and Listings
i-VCAP Lists an ETF in Malaysia
On 7 May 2015, i-VCAP Management listed an ETF on the Bursa Malaysia, namely the MyETF MSCI SEA Islamic Dividend (0825EA). The ETF tracks the MSCI SEA IMI Islamic High Dividend Yield 10/40 Index which comprise up to 30 Shariah-compliant companies listed in the stock exchages in South East Asia (Indonesia, Malaysia, the Philippines, Singapore and Thailand) with a dividend yield screen.
The listing of this ETF puts the total number of ETFs listed in Malaysia at 7.
CSOP Lists an ETF in Hong Kong
On 15 May 2015, CSOP listed an ETF on the Stock Exchange of Hong Kong (HKEx), namely the CSOP SZSE ChiNext ETF (83147 & 03147). The ETF tracks the ChiNext Index, which is designed to represent the performance of the top 100 A-Share companies listed on the ChiNext board of the Shenzhen Stock Exchange, ranked by total market capitalisation, free-float market capitalisation and turnovers. This is the 20th RQFII ETF listed in Hong Kong.
Yuanta Lists a Pair of Leveraged and Inverse ETFs in Taiwan
On 18 May 2015, Yuanta listed a leveraged and an inverse ETF on the Taiwan Stock Exchange. The ETFs, namely the Yuanta Daily CSI300 Bull 2X ETF (00637L) and Yuanta Daily CSI300 Bear -1X ETF (00638R), track the CSI 300 Daily Return Leveraged 2X Index and the CSI 300 Daily Return Inversed Index, respectively. The indices reflect a multiple or inverse of the daily performance of CSI300 without consideration of the risk free rate and short cost.
The listing of these ETF puts the total number of ETFs listed in Taiwan at 29.
Vanguard Lists an ETF in Hong Kong
On 21 May 2015, Vanguard listed an ETF on the HKEx, namely the Vanguard S&P 500 Index ETF (03140), tracking the S&P 500 Index. This is the first ETF listed in Hong Kong to track the S&P 500 Index.
The listing of this ETF and the CSOP ETF put the total number of ETFs listed in Hong Kong at 128 (150 listings).
List of ETFs Launched in May 2015