Hong Kong saw the launch of a second oil exchange-traded fund yesterday by CSOP Asset Management, hot on the heels of the first from Korea’s Samsung Asset Management on April 29. The firm is eyeing demand from China, amid recent strong demand for similar products seen there and elsewhere in the region.
Hong Kong-based CSOP’s ETF tracks the Bank of America Merrill Lynch Commodity index eXtra CLA index (Excess Return) and has raised $40 million. Samsung AM’s product, which tracks the S&P GSCI Crude Oil Index (Excess Return), has raised $19 million.
Moreover, Mirae Asset Global Investments (HK) reportedly plans to list an oil ETF in Hong Kong, but declined to comment.
CSOP is eyeing demand from Chinese investors in particular, because they do not have access to such products onshore. Qualified domestic institutional investor (QDII) managers want to add it into their portfolio, having already bought similar funds listed in the US or Europe, said Melody He, head of ETF and index solutions at CSOP. She also pointed to the benefits of investing in a fund in Hong Kong dollars, given that it is pegged to the US dollar.
But it remains difficult for Chinese investors to gain significant exposure even to Hong Kong-listed funds due to capital controls, He said, with most of them using overseas vehicles to do so. The expected inclusion of ETFs in the Stock Connect and Hong Kong-China mutual fund recognition schemes would help resolve this.
Evidence of Chinese demand for crude exposure last year was clear from strong flows into Fortune-SG’s QDII oil and gas equity index fund. Its AUM shot up from Rmb140 million ($21 million) at the end of 2014 to Rmb3.2 billion as of end-2015.
Industry observers put high demand for oil exposure down to the investors trading on the price volatility, with the expectation of a rebound in crude.
West Texas Intermediate crude plummeted 62% during 2014-2015 and dropped below $40 a barrel during the first quarter of this year, though it has since rebounded to $46.23 as of May 11.
South Korea and Taiwan are ahead of Hong Kong when it comes to development of futures-based ETFs. Mirae Asset has two listed in Korea tracking the WTI oil price, while Taipei-based Yuanta Funds has a similar product in Taiwan, launched last August.
Mirae Asset's Tiger WTI futures ETF was listed in 2010 and had $241 million in AUM on April 29 this year. The inverse version of the fund launched on April 25 last year and had $11 million in assets as of April 29.
Yuanta saw significant flows into its own oil ETF in the first quarter, when the crude price fell below $40 per barrel. The fund's AUM leapt fourfold to NT$10.8 billion ($332 million) as of March 31, from NT$2.6 billion at end-2015. Its AUM stood at $276 millon on May 11.
Both local and foreign market investors are very active in trading the oil ETF between the primary and secondary markets, and the recent volatility was strong enough for them to take profit, said Julian Liu, chief executive of Yuanta. Local investors are now keen to buy the oil ETF on any price weakness, as they are expecting a technical rebound, he added.
It is not only institutional investors that have bought the Yuanta oil ETF; some flows have come from corporates such as shipping firms, for hedging purposes, said a source in Taiwan who preferred to remain anonymous.