Hua An plans landmark cross-border ETF

The Chinese fund firm is setting out to list a new ETF in Shanghai tracking Germany’s Dax index, which will test shaky domestic investor appetite for overseas stocks.
Hua An plans landmark cross-border ETF

Hua An Fund Management Company is preparing to launch China’s first cross-border ETF based on a German stock market index.

The Chinese fund firm has signed an agreement with Stoxx, the marketing agent of all indices of Deutsche Börse and Six Swiss Exchange, including Dax and SMI.

Hua An plans to launch its Dax ETF on the Shanghai Stock Exchange (SSE) and will require approval from both the China Securities Regulatory Commission and the SSE.

The date of launch depends on regulatory approval, but since it involves a government decision the likelihood of it happening this year is low, reflects Hua An’s David Xu, managing director of passive investment.

Hua An is one of the earliest exchange-traded fund managers in China, having launched its SSE180 ETF in 2006 and SSE Leading Enterprise ETF in 2010. At present there are just two cross-border ETFs in the country and both were launched this July: China AMC and E Fund track the HSI and HSCEI indices, respectively. 

Xu notes that compared with cross-border ETFs tracking indices in Hong Kong, the Dax ETF’s correlation with China’s A-share market is lower, providing better global asset allocation.

The blue-chip Dax index tracks the stocks of the 30 largest and best-performing companies, which together represent about 80% of Germany’s market cap.

Li Qing, chief executive of Hua An FMC, says: “Our new cross-border ETF is an important means for Hua An to integrate into the international capital market and develop its overseas investment business.”

He suggests this will help to speed up its transformation from a Chinese fund company to a modern asset management institution.

Hartmut Graf, chief executive of Stoxx, adds: “The new ETF by Hua An Asset Management is a major step in providing Chinese investors direct access to the Dax index for the first time.”

However, it’s fair to point out that the first batch of qualified domestic institutional investor (QDII) products suffered severe losses in the wake of the global financial crisis, discouraging Chinese retail investors from venturing into overseas markets.

“Chinese investors are even less familiar with Dax and might also be concerned about the foreign exchange risks of the euro at this moment,” says Gary Bi, managing director of international business at Peng Hua FMC. “I believe [Hua An] FMC will need to make an extra effort to attract and educate retail investors.” 

Nevertheless, he believes now is a good time to be looking at some of Europe’s largest listed companies.

“Due to the European debt crisis their valuation is at a low level,” he notes. “This is a good time to buy. Our QDII fund [Global Discovery] invests in the Stoxx 50 ETF and has made profits.”

Product innovation in ETFs has been gathering pace in China. Not only are more cross-border ETFs in the pipeline, the first bond ETF and gold ETF are expected to be available in the near future.

According to local media, Bosera and Guotai have been coordinating with the SSE to launch the first batch of bond ETFs, while Bosera and E Fund have received authorisation from the Shenzhen Stock Exchange for the first gold ETFs.

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