BOCI-Prudential Asset Management is to list two exchange-traded funds (ETFs) on the Hong Kong stock exchange next week to tap opportunities in China’s consumption and property markets.
The funds are designed to provide returns that track the performance of underlying indices managed by the China Securities Index Company (CSI), a joint venture between the Shanghai and Shenzhen stock exchanges.
The underlying indices of the two ETFs belong to a new CSI Hong Kong-listed tradable thematic indices series (CSI HKT) launched last June, which picks stocks with high liquidity and borrowing availability in Hong Kong.
BOCI-Prudential, a joint venture founded in Hong Kong in late 2001, is scheduled to list the W.I.S.E. – CSI HK Listed Mainland Consumer Tracker and the W.I.S.E. – CSI HK Listed Mainland Real Estate Tracker on January 11.
At a media conference to publicise the launches, managing director Tang Hing Sing, head of BOCI-Prudential’s quantitative strategy business unit, identifies China’s consumption and real estate markets as “our key investment focus in 2011”.
“Given the uncertain global economic outlook and increasing inflationary pressure in China, the tradable nature of the underlying indices enables investors to make their investment decisions more efficiently,” says Dr Tang.
Polaris Securities (Hong Kong) and Goldman Sachs (Asia) Securities are the initial participating dealers for both ETFs, while Polaris also serves as market-maker.
At the conference, Kinger Lau, executive director for global investment research at Goldman in Asia, hailed the diversification advantages of investing in ETFs that track the performance of 17 consumption-related industries in China, which have shown very varied growth rates since 2004.
He pointed to the sector’s long-term growth potential, supported by continued growth in the discretionary income of Chinese consumers. “The market capitalisation of the consumption sector is only 7% of the total stock market in China, whereas in developed countries, the figure is around 30%,” he notes.
Lau also underlined his long-term positive view on the country’s real estate sector, citing the country’s rapid rate of urbanisation as a key driver to outweigh short-term headwinds, amid concerns about the impact of government measures to curb soaring property prices. He notes that the 45% urbanisation rate in China is equivalent to Japan in 1965 and Korea in 1971.
Further, he finds that Chinese property developers are on average trading at a 40% discount to their net asset value, a level last recorded in September 2008 amid the outbreak of the global financial crisis. “The market has already priced in the negative factors in the real estate sector and now is the time to buy,” he suggests.
As at December 30, the underlying index of W.I.S.E.- CSI HK Listed Mainland Consumer Tracker consisted of 25 securities listed on the Hong Kong exchange, with the top 10 representing about 70% of the total weight. They are Hengan International, Want Want, Tingyi, China Resources Enterprises, Dongfeng, China Yurun Food, China Mengniu Dairy, BYD, Parkson Retail and Brilliance China Automotive.
The underlying index of W.I.S.E.- CSI HK Listed Mainland Real Estate Tracker consists of 16 securities, with the top 10 representing approximately 86.7%. These are China Overseas, China Resources Land, Shimao Property, Sino-Ocean Land, Agile Property, Renhe Commercial, Poly HK Investment, Soho China, Yuexiu Property and R&F.
The trading board lot size for both ETFs is 500 units with an offer price per unit of about HK$10 for W.I.S.E.- CSI HK Listed Mainland Consumer Tracker and HK$6 for W.I.S.E.- CSI HK Listed Mainland Real Estate Tracker.