HSBC is set to list its Greater China ETF series in Hong Kong on Monday next week, marking the start of its expansion into Asia-Pacific’s burgeoning market for exchange-traded funds.
In a Hong Kong press conference at its Asia headquarters yesterday, the bank launched four ETFs tracking various MSCI equity indices.
The bank began building its European range of ETFs only in late 2009 and already has more than $1 billion in AUM with 23 physical Ucits III Irish-domiciled vehicles, placing it among the top 20 ETF providers in Europe. It is targeting a top 10 place within a few years.
But in Asia, where it has been in the ETF business since 2005, it currently offers only the ABF Hong Kong Bond Index Fund, which tracks the iBoxx ABF Hong Kong Index.
That is set to change. Yesterday the bank unveiled the HSBC MSCI China ETF (3033.HK), which has an estimated initial price of HK$31.20 and 140 constituents which are mostly H-shares and red-chips, but includes some P-chips (referring to Chinese firms listed in Hong Kong and incorporated in the Cayman Islands) and a small number of US-denominated B-shares.
The fund’s top 10 stocks include China Mobile, ICBC, CCB, CNOOC, Bank of China and other financial, energy and IT stocks.
Keith Chan, HSBC’s head of listed product sales, notes that this ETF tracks a more diversified universe of Hong Kong listed China stocks compared with the Hang Seng H-Share Index ETF (2828.HK), which has 40 constituents.
Meanwhile, the HSBC MSCI Hong Kong ETF (3000.HK) comprises 41 constituents, among which the top 10 are household Hong Kong names such as Hutchison, Cheung Kong, CLP Holdings and Swire Pacific. The estimated initial price is HK$30.95.
Chan describes this ETF as “a pure Hong Kong play” compared with its rival, Hang Seng Index ETF (2833.HK), which includes both Hong Kong companies and H-shares.
The HSBC MSCI Taiwan ETF (3083.HK) is constructed with stocks listed on Taiwan Stock Exchange and Gre Tai Securities Market (the OTC market). The ETF, to be offered at an estimated initial price of HK$48.5, has Taiwan Semiconductor, Hon Hai and HTC Corporation in its top 10 holding list.
Although the ETF has a much larger number of constituents (125) compared with the Polaris Taiwan Top 50 Track Fund (3002.HK), the two ETFs are highly correlated as the 50 largest Taiwanese companies make up the majority of total market capitalisation, Chan explains.
The new ETF series also includes the HSBC MSCI Golden Dragon ETF (3088.HK), which is a fund of funds holding the above three ETFs with split weightings of 47.64% for the China ETF, 30.52% for the Taiwan ETF and 21.83% for the Hong Kong ETF. Its estimated initial price is HK$39.1.
HSBC argues that in-house integration of portfolio management, market-making and custody in managing the ETF series enables the bank to offer a competitive total expense ratio of 0.50% and better risk-control. It notes that all four ETFs are physically replicated to reduce counterparty risk.
Ken Sue, head of wealth management sales, further notes that HSBC has no plans to launch an ETF physically tracking A-shares in the near future because of the scarcity of QFII quotas, and foresees “it will be difficult to launch a RMB denominated ETF until there is a broad range of RMB denominated assets which are liquid in themselves”.