Fresh quotas for A-share ETFs in Hong Kong

Chinese regulator Safe clears CSOP and E Fund for a second round of RQFII quotas. It is hoped this group of awards will lead to less homogenous product than the first.
Fresh quotas for A-share ETFs in Hong Kong

China’s foreign exchange regulator has handed a second batch of RQFII quotas to two more fund managers to launch A-share ETFs listed in Hong Kong.

The State Administration of Foreign Exchange (Safe) granted Rmb5 billion to CSOP and Rmb2 billion to E Fund on July 27, it announced on its website yesterday.

They must wait for Hong Kong’s Securities and Futures Commission to approve their renminbi qualified foreign institutional investor (RQFII) A-share ETFs, which will track the FTSE China A50 Index and the CSI 100 Index, respectively.

China AMC also received Rmb5 billion in a second batch of RQFII quotas on May 28. Its ETF tracking the CSI 300 Index has been listed on Hong Kong Stock Exchange since July 17.

To date, Safe has approved a total of Rmb32 billion in RQFII quotas, comprising Rmb22 billion to fund management companies and Rmb10 billion to securities firms.

Unlike the first batch (Rmb20 billion released last December), which was shared among 21 Hong Kong subsidiaries of Chinese fund managers and securities firms, the second batch (Rmb50 billion released on April 3 this year) is being granted to experienced managers in a far more measured manner.

Harvest is another firm awaiting approval of its second batch of RQFII quotas, having been given the go-ahead from the China Securities Regulatory Commission to launch an ETF tracking the MSCI China A Index.

RQFII A-share ETFs are the first tradable financial vehicles for international investors to gain access to China’s onshore domestic market. It’s a new investment tool for retail investors with renminbi deposits to gain access to China’s market.

Data from the Hong Kong Monetary Authority (HKMA) shows that RMB deposits in Hong Kong stood at Rmb554 billion as at the end of May.  

However, the first batch of RQFII funds proved disappointing. At the start of this year 21 firms launched funds investing at least 80% in fixed income and up to 20% in equities.

Nathan Lin, managing director of E Fund (Hong Kong), notes: “Fund houses, investors and regulators are all aware of the problem, which is homogeneous product features. The second batch will be different in terms of timing of launch, product features and number of licences. So the homogeneity issue will be of much less concern this time.”

China AMC's CSI 300 fund is the first physically backed A-share ETF listed offshore, and as such poses a challenge to existing synthetic ETFs managed by international players.

First-day trading volume for China AMC's ETF stood at HK$103 million, surpassing peers by a wide margin. Volume on the W.I.S.E. CSI300 China Tracker was HK$45 million; db X-tracker CSI300 HK$31million; and iShares CSI 300 A-share HK$0.56 million.

China AMC's fund raised HK$3.79 billion in its IPO, which by yesterday had increased to HK$3.98 billion. That means it's second to the HK$7.44 billion W.I.S.E. CSI300 China Tracker (managed by BOCI Prudential), the second synthetic A-Share ETF listed in Hong Kong since July 2007 with a feeder fund in Taiwan managed by Yuanta (formerly Polaris).

Jackie Choy, ETF strategist at Morningstar, says: “The success of China AMC’s CSI300 ETF can largely be attributed to the fact that it is the first physical A-share ETF in the market which investors have been long looking forward to, plus the CSI 300 is a well-known index which attracts investor attention.”

¬ Haymarket Media Limited. All rights reserved.