Citi launches Taiwan-focused tracker products

The C-Tracks platform allows investors to capture increasing investment opportunities in Taiwan, a market where Citi is bullish and overweight.
Citi has launched its C-Tracks platform with three Taiwan index-linked Exchange Traded Certificates (ETCs), to be listed on the Hong Kong stock exchange on May 27.

These are the first members of the new C-Tracks family of tracker products issued by Citigroup Global Markets Holdings to reach the market. The ETCs will track three indices including the TAIEX Building Material and Construction Sub-Index, TAIEX Finance and Insurance Sub-Index and TAIEX Electronics Sub-Index.

Citi says the ETCs will give investors access to TaiwanÆs stock market, which has been the best performer of all Asia-Pacific markets so far in 2008 after lagging in recent years.

Taiwanese shares have been buoyed by an anticipated fiscal stimulus from infrastructure programmes under the new government, closer economic ties with the mainland, and the resurgence of net capital inflows and the appreciation of the New Taiwan dollar.

Profit-taking set in on Tuesday after six straight sessions of gains, however, following the inauguration speech of Taiwan President Ma Ying-jeou, which didnÆt provide any fresh incentives for investors to buy. The Weighted Price Index of the Taiwan Stock Exchange fell 2.4% to 9,068.89 Tuesday, after touching a six-month high of 9,295.20 on Monday.

The ETCs has been created in response to increasing interest among CitiÆs clients to invest in Taiwan, according to Dickson Cheung, managing director for Asia-Pacific structured products and head of Greater China sales at Citi. He adds that it has been designed to be cost effective and to provide easy access to the market.

ôBy making available sector index-trackers, C-Tracks gives investors an opportunity to invest in a targeted manner in some of TaiwanÆs most popular sectors,ö says Cheung.

Taiwan has the highest dividend yield in the region, is the third cheapest in terms of price-to-earnings ratios and fourth cheapest in terms of price-to-book values. These are among the reasons why Citi continues to remain overweight in Taiwan despite the market being among the least favoured in Asia by many international fund managers. CitiÆs focus in Taiwan is its domestic sector and not the export or technology sectors that many investors are avoiding.

Until mid-2007, Citi didnÆt like Taiwan and also took the consensus bearish view. However, Citi swapped a Singapore overweight with a Taiwan underweight halfway through last year and has remained overweight the Taiwanese market since.

Citi notes that the single biggest change in TaiwanÆs market now, compared with the 1990s when the market was among the most overvalued in the region, is its average dividend yield. In the 1990s, Taiwan's dividend yield was a mere 1%, a figure that has risen to around 2.5% now.

Harold Kim, managing director and head of Asia-Pacific structured products at Citi, says the C-Tracks products are in response to investor demand for securitised versions of products that are already popular in over-the-counter form among professional investors.

ôBy securitising them and listing them on the Hong Kong stock exchange, we hope to make them available to a wider user base,ö Kim says.

The ETCs have initial five-year terms but can be rolled repeatedly at the end of each five-year period to turn them into long-dated trackers. Citi will provide daily liquidity. The C-Tracks will also offer a weekly facility to repurchase at net intrinsic value.
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