Asia ETF Roundup – November 2012
A number of first-of-a-kind ETFs were launched in the local markets within Asia in the month of November. ETF Securities launched three commodity ETFs, of which the two that track silver and platinum are new exposures in the Hong Kong ETF market. Meanwhile, Korea Investment launched an ETF tracking the CSI 300 Index which is the first ETF in Korea offering exposure to the China A-Share market.
Elsewhere, the Chinese regulator has in principal agreed to increase the RQFII quota by RMB 200 billion to RMB 270 billion. We view this as a clear message that the regulator is eager to support further RQFII product development.
November was also a month of major political events around the globe including the US Presidential Election and the announcement of China’s new generation of leaders. Meanwhile, stock markets generally returned in the positive territory for the month (S&P +0.3%, FTSE 100 +1.5%, Straits Times Index +1.0%, Hang Seng Index +1.8% and Hang Seng Enterprises Index +0.4%) except the domestic China equity market retreated (CSI 300 –5.1%, Shanghai Composite -4.3%) setting a new low in over 3 years.
Economic and Industry News
Chinese Economic Data: GDP to Double by 2020; Inflation at 1.7%
· At the Communist Party’s 18th National Congress, President Hu said China will implement reforms to make its currency and interest rates more market-based. At the Congress, the President also unveiled ambitions to double China’s GDP and per capita income by 2020. The new generation of leaders was also announced at the Congress. The new leaders will assume their roles in March 2013.
· China’s October inflation figure further cooled to 1.7% from 1.8% in September, marking a two-and-a-half year low.
Australia Cuts Rates by 25 bps
On 4 December 2012, The Reserve Bank of Australia (RBA), announced a 25bps cut in the cash rate to 3.0%, effective 5 December 2012, returning to a low-level set during the global financial crisis in 2009. The RBA last cut the cash rate by 25bps in October 2012. 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).
RQFII Quota to Increase by RMB 200bn
According to the Hong Kong Economic Times, the Chairman of the China Securities Regulatory Commission (CSRC) stated that the CSRC has approved an increase of the RQFII overall quota to RMB 270 billion from RMB 70 billion. We view this as a clear message that the regulator is eager to support further RQFII product development.
CESC Launching New Cross-Border China Index
China Exchanges Services Company (CESC), a JV formed earlier this year between the stock exchanges in Hong Kong, Shanghai and Shenzhen, will launch its first cross-border index on 10 December 2012, tracking the performance of shares listed in both Mainland China and Hong Kong (i.e. tracking both domestic and offshore Chinese equities simultaneously). The CES China 120 Index (CES120) is the first index in the CESC Cross Border Index Series. The CES120 consists of the 80 largest and most liquid stocks listed on the stock exchanges of Shanghai and Shenzhen as well as the 40 largest and most liquid stocks listed on the Stock Exchange of Hong Kong. Hong Kong-listed stocks account for 56% of the index’s value as of the end of October, while Mainland China-listed stocks account for 44%. A presentation on the index can be found here. We expect there will be ETFs that track this index in the future.
More Commodity ETPs in Hong Kong
On 28 November 2012, ETF Securities (ETFS), a UK-based exchange-traded product (ETP) provider specialising in commodity ETPs, listed 3 new ETPs that track and hold physical gold, silver and platinum. The funds levy total expense ratios (TERs) of 0.39% (gold), 0.50% (silver) and 0.60% (platinum). The 0.39% levied by ETFS Physical Gold ETF (02830) is slightly higher than Value Gold ETF (03081)’s 0.35% but slightly lower than SPDR Gold Trust (02840)’s 0.40%. These ETFS ETPs are new unit trusts domiciled in Hong Kong.
db X-trackers Looking to Launch Physical Replication ETFs in Asia
According to the Ignites Asia, db X-trackers is exploring the possibility of launching physically replicated versions of its existing synthetic replication funds in Asia. In November, db X-trackers announced that it is launching six physical replication ETFs on three exchanges in London, Frankfurt and Milan. Currently, db X-trackers only offers synthetic ETFs in Asia, with ETF listings in Hong Kong and Singapore.
MSCI Index Constituent Changes
With effect from the market close on 30 November 2012, index constituent changes were made on the key Asian indices. A summary of these changes can be found in MSCI’s press release and List of Additions/Deletions.
Hang Seng Index and HSCEI constituent Changes
With effect from 10 December 2012, the following changes will be made to the Hang Seng Index and the Hang Seng China Enterprises Index (HSCEI):
· Hang Seng Index: Kunlun Energy (00135) will be added; the total number of constituents will increase from 49 to its upper limit of 50.
· HSCEI: Great Wall Motor (02333) will be added while BYD (01211) will be removed.
Moody’s Downgrades France’s Government Bond Rating to Aa1 from Aaa
On 19 November 2012, Moody’s downgraded France’s government credit rating from the highest rating of Aaa by one notch to Aa1, with a negative outlook. According to Moody’s, the downgrade reflects three key interrelated factors: (1) the country’s long-term economic outlook is negatively affected by multiple structural challenges; (2) the country’s fiscal outlook is uncertain; and (3) the predictability of France’s resilience to future euro area shocks is diminishing.
RQFII ETF Watch
· All RQFII ETFs Now Have Dual Counter Trading – On 8 and 9 November 2012, CSOP FTSE China A50 ETF (82822) and E Fund CSI 100 A-Share Index ETF (83100), respectively, added Hong Kong dollar counter trading, under the respective stock codes 02822 and 03100. Now, all 4 RQFII ETFs have Hong Kong dollar counter trading available on the Stock Exchange of Hong Kong.
· CSOP Applying for Additional RQFII Quota – On 8 November 2012, CSOP FTSE China A50 ETF (82822, 02822) announced that the manager had applied for an increase to its RQFII quota on 7 November. Total RQFII quota for this ETF currently stands at RMB 10 billion compared to the fund’s AUM of RMB 9.6 billion as of end-November 2012.
· ChinAMC Applying for Additional RQFII Quota – On 26 November 2012, ChinaAMC CSI 300 Index ETF (83188, 03188) announced that it had applied for an increase to its RQFII quota. The ETF last obtained an increase to its RQFII quota of RMB 3 billion on 30 October 2012, putting its total quota granted at RMB 8 billion.
· CSOP FTSE China A50 ETF Approved for Warrant Issuance – On 26 November 2012, CSOP FTSE China A50 ETF (82822, 02822) announced that the Hong Kong Stock Exchange had approved the ETF as an eligible Hong Kong stock for derivatives warrant issuance and that multiple warrant issuers have been actively preparing for the issuance of relevant warrants. We believe the introduction of derivative products linking with the ETF will likely increase the trading volume of the ETF. Upon derivatives issuance, investors should continue to closely monitor the premium/discount level of the ETF. On 4 December 2012, 11 warrant issuers issued 23 warrants with various terms (such as expiry date, exercise price, etc) linked to the HKD counter of the CSOP FTSE China A50 ETF (02822).
New Launches and Listings
UBS Hana Lists an ETF in Korea
On 12 November 2012, UBS Hana Asset Management listed an ETF on the Korea Exchange, namely the UBS Hana KTOP KOSPI50 ETF (A168300). The ETF tracks the KOSPI 50 Index. The index consists of the 50 largest stocks in the Korean market.
Krung Thai Lists an ETF in Thailand
On 20 November 2012, Krung Thai Asset Management listed an ETF on the Stock Exchange of Thailand, namely the KTAM SET Banking ETF Tracker. The ETF tracks the SET Banking Sector Index, a capitalisation-weighted index of all stocks of the SET Index that are in the banking sector, consisting of 11 stocks. This puts the total number of ETFs listed in Thailand at 11.
ETF Securities Lists 3 ETPs in Hong Kong
On 28 November 2012, ETF Securities listed 3 exchange-traded products (ETPs) on the Stock Exchange of Hong Kong. The products invest in physical gold, silver and platinum. The ETPs track the London PM Fix for gold, the London Fix for silver and London PM Fix for platinum, respectively. This puts the total number of ETFs listed in Hong Kong at 103.
Korea Investment Lists an ETF in Korea
On 29 November 2012, Korea Investment listed an ETF on the Korea Exchange (KRX), namely the KINDEX China A CSI300 ETF (A168580). The ETF tracks the CSI 300 Index and is the first ETF on the KRX tracking stocks listed on the China domestic A-Share market. This puts the total number of ETFs listed in Korea at 134.
List of ETFs Launched in November 2012
Jackie Choy, CFA, is an ETF Strategist with Morningstar
