China Construction Bank (CCB) has listed the first RQFII money-market ETF in London, the lender announced yesterday.
The bank, China's second-largest lender, said the launch was part of CCB's strategy to promote the globalisation of the renminbi.
CCB is following in the footsteps of other Chinese banks which have been stepping up their launch of renminbi investment products in Europe in a bid to tap demand from investors keen for exposure to the currency.
CCB International Asset Management (CCBIAM), an investment arm of the Chinese bank’s Hong Kong subsidiary CCB International, listed the money-market Ucits exchange-traded fund on the London Stock Exchange yesterday.
The firm has launched it in partnership with Germany’s Commerzbank Asset Management, which will be the fund’s market maker.
The UK-domiciled fund has become the first renminbi-denominated money-market ETF listed in London, with investors able to trade in three currencies – renminbi, pounds and euros.
CCBIAM’s new fund will be similar to money-market ETFs listed on the Shanghai Stock Exchange, but it will be the first renminbi money-market ETF listed overseas.
CCBIAM’s new fund will invest in market instruments traded on China’s interbank bond market and both the Shanghai and Shenzhen exchanges, with a weighted average maturity of less than six months. Its returns will be comparable to China’s benchmark seven-day notice deposit interest rate, which was yielding 1.35% yesterday. Shanghai-listed money-market ETFs were yesterday offering seven-day annualised yields ranging from 3.84-4.47%.
Fund managers have stressed that money-market instruments are necessary tools for the development of renminbi internationalisation. CCB said it expects renminbi business to expand under the capital account; only Rmb10.8 billion ($1.7 billion) of the UK’s allocated Rmb80 billion RQFII quota had been used by the end of 2014.
CCBIAM received its renminbi qualified foreign institutional investor (RQFII) licence from the China Securities Regulatory Commission (CSRC) in March 2013, and was given a quota of Rmb4.3 billion in August last year. The firm had used Rmb3.3 billion of its total quota in onshore equity and bond purchases by the end of 2014.
CCB’s other subsidiary, CCB (London), received an RQFII licence from the CSRC last month. It was the first RQFII licence to be granted to a bank in London.
“The licence and quota are part of CCB’s strategy to promote the globalisation of renminbi, and we are keen to introduce new renminbi products to the UK and European markets,” said Daniel Widdicombe, head of the investment banking division at CCB (London). The bank has not yet decided how much quota to apply for, but Widdicombe said licence holders typically applied for between Rmb500 million and Rmb1 billion.
CCB was appointed as a clearing bank for offshore renminbi in London in June last year, and Widdicombe sees the ETF listing and the RQFII licence as two important ways for the bank to build its UK business in the Chinese currency.
“London’s renminbi market is still an immature market, like the Hong Kong market eight years ago. But [corporate and investors'] interest in renminbi is extremely strong,” Widdicombe said. Investors are attracted to renminbi assets because of higher yields and the need for diversification, while corporates want to pay for goods in renminbi instead of dollars, and to raise finance using dim sum bond issuance, he added.
Chinese banks have been stepping up their launch of renminbi investment products in Europe recently. In October last year ICBC, China’s largest bank, launched the first Ucits renminbi bond fund. The fund is a joint venture between two of the bank’s subsidiaries - ICBC (Europe) as distributor, and Hong Kong-based ICBC (Asia) Investment (ICBCAIM) as portfolio manager. The fund invests in Chinese onshore bonds via ICBCAIM’s RQFII quotas.