Asia ETF Roundup – February 2012

In the first two months of 2012, we have seen an active start for the Asia ex-Japan exchange traded fund (ETF) market, with 34 new listings in the region (24 in Hong Kong, 8 in Korea, and 2 in Singapore), compared to around 100 new listings for the full year 2011, with some offering new exposures to investors. Particularly noteworthy is the launch of the first RMB denominated ETF listed on the Hong Kong Stock Exchange. Looking ahead, China is preparing to launch ETFs linked to Hong Kong listed shares and inter-market (Shanghai-Shenzhen) ETFs. The Asian ETF market is set to grow, and ETFs are likely to become an ever-more viable investment vehicle in Asia.

Industry News

China Preparing to Launch ETFs Linked to Hong Kong Listed Shares
According to data posted on the China Securities Regulatory Commission (CSRC) website, CSRC is vetting an application from E Fund Management Co. Ltd. for listing an ETF in Shanghai and Shenzhen that tracks Hong Kong listed securities. E Fund is China’s third-largest asset management company with AUM close to RMB200bn (c.US$32bn) according to the company website. In addition, the vetting process of China AMC’s Hong Kong Hang Seng Index Fund (QDII) was re-initiated. The fund was first entered into vetting process in April 2009 with a plan to list on the Shenzhen Stock Exchange but the vetting process was subsequently halted. China AMC is the first ETF manager in China, with AUM of RMB291bn (c.US$47bn), making it the largest asset management company in China.

According to a report by the Hong Kong Economic Times, although funds in China generally take 6 months to clear the vetting process, these HK index ETFs belong to a category of “special products”. As such, as soon as the State Council approves these products, CSRC could subsequently approve them, and they could be listed within a month.

The launch of China listed ETFs tracking HK listed stocks is an important step in the development of Chinese ETFs where, as they will provide a new channel for Chinese investors to gain access to HK listed stocks.

First China Inter-market ETFs Under Application
Two ETFs that track the CSI 300 index have entered into the vetting process with the China Securities Regulatory Commission (CSRC). The CSI 300 index tracks the performance of 300 A-share stocks listed on the stock exchanges in Shanghai and Shenzhen. Upon approval by the CSRC, these two ETFs will be the first inter-market ETFs in China, offering a new way for Chinese investors to gain exposure and/or to hedge the performance of the two markets.

China Lowered 2012 GDP Target to 7.5%
At the National People’s Congress, Premier Wen Jiabao projected a GDP growth target of 7.5% for 2012, versus last year’s projected rate of 8% and actual GDP growth of 9.2%. This is the first time in seven years that China has projected a lower growth rate.

Lyxor ETFs – Société Générale’s Credit Rating Downgraded
With effect from 23 January 2012, the long-term counterparty credit rating of Société Générale, which is the swap counterparty to Lyxor ETFs, has been revised by Standard & Poors from “A+” to “A”. The downgrade of Société Générale followed the sovereign downgrade of France, from “AAA” to “AA+” in January 2012. At present, there are 12 Lyxor ETFs listed in Hong Kong and 28 Lyxor ETFs listed in Singapore.

Lyxor ETFs – Change of Benchmark and Names of 3 ETFs Listed in Singapore
With effect from 20 March 2012, LYXOR ETF MSCI AC Asia ex Japan Real Estate (MT7), LYXOR ETF MSCI Asia APEX 50 (G1K), LYXOR ETF NASDAQ-100 (H1Q) will have their benchmarks and names changed as follows:

According to Lyxor’s announcement, the benchmark changes for LYXOR ETF MSCI AC Asia ex Japan Real Estate (MT7) and LYXOR ETF MSCI Asia APEX 50 (G1K) are being changed for a broader universe of underlying securities, whereby the change of the 3 benchmarks to total return indexes is to harmonise Lyxor’s ETF range which mainly tracks total return indices.

New Launches and Listings

db X-trackers lists 6 Synthetic ETFs on the Hong Kong Stock Exchange
On 12 January 2012, db X-trackers listed 6 synthetic ETFs on the Hong Kong Stock Exchange, offering exposure to Australian Dollar interest rate, and emerging markets (China, India, Indonesia, Malaysia and Thailand). It had been a year and a half (July 2010) since the last synthetic ETF was authorized in Hong Kong. This brings the total product offering from db X-trackers to 30 ETFs in Hong Kong.

Mirae lists 7 ETFs on the Hong Kong Stock Exchange
On 27 January 2012, Mirae listed 7 ETFs on the Hong Kong Stock Exchange, under its Mirae Asset Tiger ETF Series. The new Mirae ETFs track the S&P Emerging Asia consumer, global consumer and Asia ex-JANZ sectors including financials, IT, industrials, energy and materials indices. This brings the total product offering from Mirae to 8 ETFs in Hong Kong.

First RMB Denominated ETF Lists on the Hong Kong Stock Exchange
On 14 February 2012, Hang Seng Bank launched the first Renminbi (RMB) denominated ETF on the Hong Kong Stock Exchange – Hang Seng RMB Gold ETF (83168) - which tracks the London Gold Fixing Price in USD. The ETF is a physical ETF and employs hedging strategies against FX movements between the RMB and USD. AUM of the ETF was Rmb110m at the end of the first trading day. With the debut of the first RMB denominated ETF complete, more RMB dominated ETFs are now expected to be offered on the Hong Kong Stock Exchange.

Ping An lists 3 ETFs on the Hong Kong Stock Exchange
On 15 February 2012, Ping An of China Asset Management listed 3 ETFs on the Hong Kong Stock Exchange. The new Ping An ETFs tracks the CSI HK Dividend, CSI HK Mid Cap Select and CSI RAFI HK 50 Index. This brings the total product offering from Ping An to 4 ETFs.

EIP lists 7 Synthetic ETFs on the Hong Kong Stock Exchange
On 16 & 21 February 2012, Enhanced Investment Products (EIP) listed 7 synthetic ETFs on the Hong Kong Stock Exchange which track the stock market performance of India, Indonesia, Korea, Malaysia, Philippines, Taiwan and Thailand. EIP is a boutique asset management house based in Hong Kong, with AUM of US$360m, the firm was established in 2002. EIP adopts a multiple counterparty strategy, i.e. the ETF enters into unfunded swap transactions with multiple swap counterparties--Citigroup Inc. (S&P long term credit rating “A-”), JPMorgan Chase & Co. (S&P long term credit rating “A”) and Royal Bank of Scotland Group Plc (S&P long term credit rating “A-”). EIP is the first local ETF provider to offer synthetic products.

12 Lyxor ETFs to be delisted from the Hong Kong Stock Exchange in March
Investors should be reminded that all 12 Lyxor ETFs will be delisted from the Hong Kong Stock Exchange on 13th March (last trading day being 7th March). Lyxor’s ETF focus in Asia will then switch to Singapore where it has 28 listings.

Lyxor lists 2 Synthetic ETFs on the Singapore Stock Exchange
On 24 February 2012, Lyxor listed 2 synthetic ETFS on the Singapore Stock Exchange (SGX) which track the MSCI Indonesia Net Total Return Index and SET50 Net TR Index. Société Générale is the swap counterparty for the ETFs. The last time Lyxor launched ETFs on the SGX was a year ago on 28 February 2011 when 5 ETFs were launched.

8 New ETFs Launched on the Korean Exchange
Thus far in 2012, there have been 8 new ETFs listed on the Korean Exchange. Seven out of the eight new ETFs track the KOSPI 100 Index, KOSPI 200 Index, KOSPI 200 future, FnGuide Consumer Index, KODEX 10Y F-LKTB Index (exposure to 10 year Korea Long-term Treasury bond futures index) and KRW Cash Index (Total Return), with an eighth being a leveraged ETF that aims to replicate twice the daily performance of the KOSPI200 index.

List of Newly Launched ETF since 2012

Jackie Choy is an ETF Strategist with Morningstar.