Deutsche Bank’s passive asset management business is to cross-list five ETFs in Hong Kong today, including the city’s first to track stocks in Singapore, Bangladesh and Pakistan.
All these exchange-traded funds are synthetic, or swaps-based, have previously been listed in Europe (London or Germany in 2011/12) and Singapore in 2011 and are Ucits-compliant.
They are MSCI Singapore, MSCI Bangladesh, MSCI Pakistan, MSCI Philippines and MSCI Asia ex-Japan high dividend.
Because these products are not domiciled in Hong Kong, they are not subject to the same strictures of 100% collateralisation that the city’s Securities and Futures Commission introduced to prevent uncollateralised counterparty risk.
However, Marco Montanari, Asia-Pacific head of passive asset management at Deutsche Asset and Wealth Management, notes that Deutsche puts up 120% of collateral on all its synthetic products and displays this daily on its website.
The new funds bring the number of ETFs Deutsche has listed in Hong Kong to 35, while it has 47 in Singapore. Montanari says it is still deciding which other products to add, although nothing will be introduced for two or three months.
He confirmed that Deutsche started discussions over these listings with the SFC last year, meaning they have taken several months to be approved.
Asked about the timing of the latest launches, Montanari says the bank is keen to replicate the success of its Vietnam ETF, which has amassed $400 million in assets since it was listed in Germany and London in February 2008, including $60 million in Hong Kong since its listing there in July 2009.
“Our Vietnam product has been popular in Hong Kong, so we wanted to bring other frontiers to the market, including the first to track Bangladesh and Pakistan,” he tells AsianInvestor.
While the Philippines is not frontier, Montanari notes the nation’s equity market has risen 17% year-to-date, as against -1% for China. “The Philippines is probably the most interesting market right now, with the country’s credit rating having just been upgraded by Fitch for the first time to investment grade [late March].”
As for its Asia ex-Japan high-dividend yield ETF, Montanari points to the recent success of mutual funds with a high-yield or dividend theme. “We hope we will see similar interest that the mutual funds industry has seen.”
Overall Deutsche has around 270 ETFs listed globally, of which just a handful are physically backed. All of its Asia listings are synthetic.
Montanari says Deutsche will continue its rollout of physically backed ETFs in developed markets, while at the same time he is expecting further growth in synthetics in Asia.
“Korea recently created rules for synthetic ETFs [due to be implemented in June] and this is part of the evolution of the market,” he says.
“Last year Hong Kong was very focused on RQFII ETFs and that was the big innovation, and this year there is probably space for new and innovative products providing different market exposure.”
Deutsche’s db X-trackers unit was shifted from its investment bank to its retail fund management arm DeAWM last year.