Taiwan's Cathay Securities Investment Trust says this week it has signed an exclusive deal with Beijing-based China Asset Management. ChinaAMC will become a sub-advisor to Cathay for China-listed A-shares, Hong Kong H-shares and red-chip allocations in an upcoming Greater China fund planned at Cathay Site (securities investment trust enterprise). The deal will be good for two years.
The launch date for the fund has not yet been set. The eventual size of the deal will be subject to fundraising efforts and investor sentiment in Taiwan.
The arrangement has been struck to play-up potential cooperation opportunities that will come with the long-anticipated arrival of a cross-strait MoU between China and Taiwan's financial regulators said to be slated to appear before the end of this year. However, with current regulatory and political sensitivity still remaining, the deal is in effect signed by ChinaAMC's Hong Kong subsidiary headed by CEO Cheng Haiyong. ChinaAMC's Beijing head office will not play an official role in the fund.
Earlier this year, the domestic Taiwanese ETF powerhouse Polaris secured a deal with Fortis Haitong in Shanghai for a similar strategic partnership; and followed this with a successful fund launch with Hong Kong's BOCI-Prudential, which had cross-listed its popular ETF in Taipei (which in reality is a feeder fund). The ETF tracks the CSI300 index of Chinese A-shares listed in Shanghai and Shenzhen.
Partnerships between domestic players will help Taiwanese fund managers compete on a stronger footing with foreign players such as JP Morgan or HSBC, to whom Greater China strategies are nothing new. JP Morgan's Shanghai JV with China International and its Hong Kong unit help generate investment ideas and package products for its Taipei subsidiary; the reverse is also possible.
HSBC had also been able to add an ETF on the island. It had introduced its own attempt to bring in a China ETF through a master fund structure.
Industry participants generally believe it will be a long time before Taiwanese players secure QFII forex quota from the State Administration of Foreign Exchange in China to invest in A-shares. But deals like the one signed between Cathay and ChinaAMC help create publicity when competing for a niche for China-themed funds in Taipei - and perhaps some goodwill with mainland authorities.
For more detail regarding cross-strait investments, see "Panda-monium breaks out in Taipei" in AsianInvestor magazine's May 2009 issue.