Asia ETF Roundup (Industry) – February 2014

No More Stamp Duty for All Hong Kong Listed ETFs
In 2010, the Financial Secretary of Hong Kong extended a stamp duty concession to ETFs that track indices comprised of no more than 40% of Hong Kong stocks. On 26 February 2014, at the 2014-15 Budget Speech, the Financial Secretary proposed to waive the stamp duty for the trading of all ETFs.

We welcome this stamp duty waiver as it will reduce the cost of investing in ETFs. At present, stamp duty is charged at 0.1% of the price of the ETFs, payable by each of the buyer and the seller (i.e. a total of 0.2% on each transaction). As of 28 February 2014, according to the Hong Kong Exchange website, there are 28 ETFs that are subject to stamp duty, including the Tracker Fund of Hong Kong (02800).

Mutual Recognition of Funds between Hong Kong and China “Reached Consensus”
In Hong Kong, at the 2014-15 Budget Speech held on 26 February 2014, the Financial Secretary reaffirmed that consensus has been reached on the mutual recognition of funds between Hong Kong and China: “Consensus has been reached between the Securities and Futures Commission and relevant Mainland authorities on the mutual recognition of funds.  On implementation, this arrangement will further promote the diversification of fund products in the Mainland and Hong Kong.”

MSCI Index Constituent Changes
According to MSCI, the following index constituent changes were made, effective as of market close on 28 February 2014:

• MSCI China Index: 2 additions – China Cinda Asset Management (01359), CSPC Pharmaceutical (01093)
• MSCI India Index: 3 deletions – Lupin (LUPIN), Power Grid Corp of India (POWERGRID), Zee Entertainment (ZEEL)
• MSCI Japan Index: 1 addition – Seiko Epson (6724); 1 deletion – Nomura Office REIT (8959)

Hang Seng Index and HSCEI constituent Changes
With effect from 10 March 2014, the following changes will be made to the Hang Seng Index and the Hang Seng China Enterprises Index (HSCEI):

• Hang Seng Index: 1 addition: China Mengniu Dairy (02319); 1 deletion: China Coal Energy (01898)
• HSCEI: 1 addition: BYD (01211); 1 deletion: Zoomlion Heavy Industry Science and Technology (01157).

CSOP ETFs No Longer Provide for Realised and Unrealised Capital Gains Tax Except for Land Rich Companies
On 17 February 2014, the CSOP RQFII ETFs, namely the CSOP FTSE China A50 ETF (82822, 02822), CSOP CES China A80 ETF (83137, 03137) and CSOP China 5-Year Treasury Bond ETF (83199, 03199) announced that they will no longer provide for realised and unrealised capital gains tax for A-Shares except for land rich companies. This follows a similar announcement from ChinaAMC CSI 300 Index ETF (83188, 03188) which no longer provides for such tax from 27 January 2014.

As of 14 February 2014, the CSOP FTSE China A50 ETF had a total provision of Rmb 111 million of which Rmb 107 million was related to non-land rich companies (0.47% of the NAV of the ETF) whereas the CSOP CES China A80 ETF had a total provision of Rmb 0.52 million of which Rmb 0.49 million was related to non-land rich companies (0.18% of the NAV of the ETF).

On 21 February, the manager of Harvest MSCI China A Index ETF (83118, 03118) and Harvest MSCI China A 50 Index ETF (83136, 03136) announced that the manager is seeking tax advice with regard to certain changes with respect to its PRC withholding tax (“WIT”) provisioning approach on the gross unrealised and realised capital gains derived from trading of China A-Shares.

RQFII ETF Watch – 12^th RQFII ETF Listed; Another Month of Net Inflows, Albeit Smaller

The 12^th RQFII ETF, CSOP China 5-Year Treasury Bond ETF (Rmb counter 83199; HKD counter 03199), was listed on 19 February 2014 on the Stock Exchange of Hong Kong. This is the first RQFII onshore treasury ETF. The ETF tracks the ChinaBond 5-Year Treasury Bond Index which is comprised of Chinese treasury bonds with fixed interest rates and maturity term of 4 to 7 years. The ETF levies an estimated TER of 0.49%.

On 24 February 2014, E FUND CSI 100 A-Share Index ETF (83100, 03100) was granted with additional RQFII quota of Rmb 2 billion, putting total quota available at Rmb 5 billion.

In February 2014, RQFII ETFs continued to see aggregate net inflows, amounting to Rmb 669 million (1.8% of beginning and ending AUM, excluding the net inflows, or seed capital, into the newly listed ETFs on their first day of trading), compared to over Rmb 2 billion in each of the past three months. Amongst the RQFII ETFs, the CSOP FTSE China A50 ETF (82822 & 02822) recorded the largest net inflows, totaling around Rmb 1.9 billion, while the Bosera FTSE China A50 Index ETF (82832, 02832) and the ChinaAMC CSI 300 Index ETF (83188, 03188) each recorded closed to Rmb 1 billion of net outflows.

The largest A-Share ETF by AUM in Hong Kong, iShares FTSE A50 China Index ETF (02823), also recorded net inflows in the month, estimated at Rmb 1.4 billion, compared to Rmb 2.4 billion of net inflows in January.

New Launches and Listings

CSOP Lists a RQFII Bond ETF in Hong Kong
On 17 February 2014, CSOP listed a RQFII bond ETF the Stock Exchange of Hong Kong, namely the CSOP China 5-Year Treasury Bond ETF (Rmb counter 83199; HKD counter 03199). This is the first RQFII onshore treasury ETF. The ETF tracks the ChinaBond 5-Year Treasury Bond Index which is comprised of Chinese treasury bonds with fixed interest rates and maturity term of 4 to 7 years. This is the 12^th RQFII ETF listed in Hong Kong and puts the total number of ETFs listed in Hong Kong at 117.

Mirae Lists an ETF in Korea
On 17 February 2014, Mirae Asset listed an ETF on the Korea Exchange, namely the TIGER China A300 ETF (A192090), tracking the CSI 300 Index. This is the 4th ETF listed in Korea that tracks the onshore Chinese equities market.

Kyobo AXA Lists an ETF in Korea
On 20 February 2014, Kyobo AXA listed an ETF on the Korea Exchange, namely the Kyobo Power LVHD ETF (A192720). The ETF tracks the KOSPI 200 Low Volatility High Dividend Index.

This ETF and the TIGER ETF puts the total number of ETFs listed in Korea at 148.

List of ETFs Launched in February 2014