iShares adds five A-share ETFs in Hong Kong

Nov 17, 2009

The products will provide access to the CSI 300 index and more focused exposure to four sectors, including energy, financials, infrastructure and materials.

Today, on the fifth anniversary of the 2004 listing of the wildly popular iShares FTSE/ Xinhua A50 China Index ETF, iShares is launching five new A-share ETFs in Hong Kong.

The new listings include four sector-based A-share ETFs and one feeder fund that will give investors alternative exposure linked to the CSI 300 index. They are the iShares CSI 300 A-shares Index ETF, iShares CSI A-share Energy Index ETF, iShares CSI A-share Financials Index ETF, iShares CSI A-share Infrastructure Index ETF and iShares CSI A-share Materials Index ETF.

The sector ETFs will be particularly useful for investors keen on implementing specific market views or gaining more defined exposures to industries in China based on more narrowly focused A-share indices packaged by the China Securities Index Company.

Nick Good, Asia-Pacific chief executive of iShares in Hong Kong, says the funds will start trading with about $500 million worth of assets under management. iShares will stick to the multi-counterparty model for market-making to ensure sufficient liquidity for the products.

The five new funds will bring the total number of iShares China-related ETFs up to seven listed in Hong Kong and 11 globally. At the press conference yesterday, the iShares team was keen to stress its expertise as a China ETF specialist.

Jane Leung, senior director of product at iShares Asia ex-Japan, says the new listings will mean iShares provides the most comprehensive suite of ETFs to the China market for offshore investors. In particular, iShares' greatest hit, the FTSE Xinhua A50 ETF, now boasts an AUM close to $6.4 billion. It is the largest and most heavily traded ETF in Hong Kong.

The numbers look glossy. And the further differentiation of China-related ETF products into sector indices deserves to be cheered, as it gives yet another boost to Hong Kong's position as a trading hub for China providing access to local and foreign investors.

Yet iShares' suite of China ETF products is not free of troubles -- most of which only recently came to investors' attention during the financial crisis.

When asked about efficiency issues of the brand's existing A-share products (traded premium for the iShare FTSE-Xinhua A50 China Index ETF once came close to 20% during the turmoil, for instance), Leung dismissed these as short-term abnormalities derived from market volatility or poor market sentiment. Over time, she said, the ETFs should trade close to net asset values.

Separately, responding to a question on China's draconian monthly repatriation rules, Leung said it is too early to comment on the effects of the State Administration of Foreign Exchange's new qualified foreign institutional investor rules on the A-share ETF products. The details are yet to be written, she said, and iShares is in talks with all relevant regulators.

Meanwhile, behind the scenes, integration work for the merger between BlackRock and iShares parent Barclays Global Investors is close to completion. BlackRock has designated December 1 as the official closing date for its highly leveraged transaction, valued at $13.5 billion. After that date, the BGI brand will cease to exist -- yet another bank-affiliated asset management marque consigned to history. BlackRock will use the iShares name when marketing ETF products.

Peter Swarbreck, Asia-Pacific CEO of BlackRock in Hong Kong, says the integration is going well and that BlackRock will remain committed to developing both BlackRock's and BGI's lines of business in the Asia-Pacific region. Good, who will soon report to Swarbreck, says redundancies resulting from overlapping functions will be "limited". Both refused to give specifics on names or figures.

Under outgoing Asia CEO Mark Talbot, headcount at BGI has grown rapidly over the past few years. The firm witnessed a hiring bonanza earlier this year shortly before Barclays announced its intention to sell iShares and after it said it planned to sell the whole of BGI.

Estimates vary, but sources in the market say the BGI headcount now responsible for maintaining the iShares business is close to 10 times that of the next biggest ETF business in the region. At State Street Global Advisors, the headcount responsible for the same function is around three, compared to an estimated 50 at BGI.