Chinese asset manager Da Cheng International is set to list two new exchange-traded funds (ETFs) on the Hong Kong stock exchange before Christmas as part of a drive to raise its profile among international investors, CEO Doris Lian tells AsianInvestor.
The funds are expected to be launched on December 20, offering investors comprehensive exposure to both state-owned and privately owned mainland firms listed in Hong Kong. They are based on two indices launched by the China Securities Index on July 30 this year. The base reference date for the indices (1,000 points) is December 31, 2007.
The Da Cheng CSI Hong Kong Private-owned Mainland Enterprises Tracker (CSIPOE) and Da Cheng CSI Hong Kong State-owned Mainland Enterprises Tracker (CSISOE) track the top 40 and 39 mainland stocks, respectively, in Hong Kong by average daily market value.
These new funds follow the launch of the Da Cheng CSI Mainland Consumer Tracker, the first mutual fund to be issued in an overseas market by a Chinese asset manager, notes Lian. The fund now has a market capitalisation of around HK$200 million ($25.7 million) and has recorded over a 20% price rise.
“It is difficult for less well-known Chinese asset management companies to launch mutual funds in Hong Kong, but this is Da Cheng’s core competence in China which should be extended in overseas markets,” adds Lian.
She believes that the popularity and transparency of ETFs is the best way to raise the company’s profile in Hong Kong and showcase its capabilities to an international audience.
“It reduces the pressure on us, as a newcomer to Hong Kong, in terms of building extensive distribution channels and it raises publicity among investors quickly,” says Lian.
“We would like overseas investors to recognise Da Cheng as an expert in managing mutual funds and get our name out there. We will not be satisfied with just offering private placement and not being known by the public.”
The IPO price for both ETF funds stands at HK$10 per share. The minimum basket size for IPO investors is 500,000 units, while in the secondary market it is 500 units.
In terms of sector weightings, the CSISOE comprises financials (48.60%), energy (24.37%) and telecommunication services (13.20%), while the CSIPOE offers financials (30.82%), consumer discretionary (25.76%), consumer staples (14.44%) and information technology (13.30%).
CSISOE’s underlying stocks include Bank of China, ICBC, CCB, China Shenhua, Yanzhou Coal, China Mobile and China Telecom; while stocks tracked by CSIPOE include Ping An, Tencent, Belle International, BYD and Alibaba.
The market value and trading volume of the CSISOE represents 86.51% and 71.49%, respectively, of the 321 mainland state-owned stocks listed in Hong Kong; CSIPOE represents 62.56% and 59.63% of the 228 mainland privately owned stocks.
In terms of valuation, the price-to-earnings ratios for the two indices are estimated at 17.89 times and 25.1 times for 2010, and 14.7 times and 20.3 times for 2011.
The initial participating dealers of the two ETF funds are Merrill Lynch Far East, Goldman Sachs (Asia) Securities, China Merchant Securities (HK) and Haitong International Securities.
Lian discloses that long-only pension funds and some hedge funds without a large research team are among the institutions to have expressed interest in the ETFs. “Prudent investors favour passive products,” she states, adding hedge funds could allocate up to 40% into these ETFs and reduce the pressure of stock selection.
The management fee and trustee fee ratios of the two new ETFs are 0.6% and 0.125%. BOCI-Prudential is the Trustee, Merrill Lynch Far East the market-maker and PriceWaterCoopers the auditor.
Da Cheng was founded on March 19 last year. It is 100%-owned by Da Cheng Fund Management, with registered capital of HK$60 million.