HSBC building passive RQFII hub in London

Having shuttered its passive business in Hong Kong, the firm will confine its RQFII quota there to actively managed products, while London will be home to its passive RMB strategies.
HSBC building passive RQFII hub in London

HSBC Global Asset Management is in the process of building up its passive RQFII business in London, having shuttered its passive unit in Hong Kong earlier this year.

Carmen Gonzalez-Calatayud, the firm’s London-based exchange-traded-fund specialist, says it has centralised its passive manufacturing in London and applied for an RMB-denominated qualified foreign institutional investor (RQFII) quota there. It plans to launch new passive RQFII products once it obtains the quota.

It comes after HSBC GAM shuttered its passive RQFII business in Hong Kong this February, delisting its four ETFs – products focused on China, Greater China, Hong Kong and Taiwan.

Gonzalez-Calatayud tells AsianInvestor she sees potential for RQFII ETFs in Europe as they would provide investors access to China who have no experience of allocating assets to the market.

Carmen Gonzalez-Calatayud

“I enquired about China with my private bank clients in Europe. From a discretionary portfolio perspective, they still don’t make any allocation to China,” she said, noting many gain mainland exposure through their emerging market or Asian allocations. She argues that such investors should separate out China.

At the same time she suggested that discretionary managers in Europe were interested in what is happening with the RQFII programme and in making specific allocations to China.

Demand for RQFII ETF funds in Europe has grown rapidly, even if from a low base.This January, CSOP Asset Management and UK ETF provider Source listed the first Ucits RQFII ETF on the London Stock Exchange, swiftly followed by Deutsche Asset & Wealth Management together with Harvest Global Investments, as reported.

Having launched in January with assets under management of $94.4 billion, the latter ETF’s AUM had reached $318 billion by July 29, according to DeAWM data.

In London, Ashmore and BlackRock have also received RQFII licences after the city was handed a quota of Rmb80 billion ($13 billion) in October last year.

While Gonzalez-Calatayud declined to comment on how passive RQFII products would be constructed in London, she said they would likely track an index that does not have heavy exposure to particular sectors. More than 30% of the CSI300’s constituents are financial companies, for instance.

“From our perspective as a provider, you want to capture as many [sectors] as you can … You want to launch something that everyone wants,” said Gonzalez-Calatayud. “It can’t be so specific that you start slicing and dicing your investor base too much.”

Despite its withdrawal of passive products from Hong Kong, HSBC GAM says it will continue to manage RQFII funds actively. Last month it brought its RQFII Chinese Fixed Income Fund to market in the city.

“It makes sense if you’re going to have a stock-picker or someone who is going to invest actively, for that portfolio manager to be based locally,” said Gonzalez-Calatayud talking about Hong Kong.

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