As a token of appreciation, iShares handed out two champagne glasses to each member of the press who braved the rain yesterday to venture to the Watermark restaurant fronting Hong Kong harbour. The occasion? Asia-Pacific chief executive Nick Good wanted to spread the word that parent company Barclays Global Investors (BGI) is opening a Beijing rep office and iShares is finally getting a Chinese name.
No big surprises in the two characters that iShares has chosen for itself: "solid foundation" and "prosperity". Meanwhile, BGI has appointed Larry Lee, former head of China at Fitch Ratings, as its new chief representative for China.
The firm reckons it has a strong following among the institutional investor and qualified domestic institutional investor (QDII) community in China. (But as ETFs are openly traded, iShares does not know how much of its Asia AUM is actually sourced from Chinese clients; and even if it knew, it's not at liberty to disclose institutional clients' portfolio values.)
Good says he has plans to penetrate that market further, but left much to be desired with his series of non-committal responses. He told the assembled journalists that he is not at liberty to discuss his Chinese clients and much of his onshore plans.
Lee spoke generally about the exponential growth in the Chinese ETF market, saying that the trading volume for the six ETFs (one actually not functioning) has increased seven times between January and August this year.
However, while the Shanghai bourse and government plans to introduce international ETFs in the local market shortly, Chinese regulators have none-too-subtly stated their preference to see domestic Chinese houses build a market presence and their own suite of international ETFs, before they will let foreigners into the game.
Lee says many steps still lie ahead for iShares before it will see itself as a player in Shanghai. Good and his team have lofty goals in carving out a role for iShares in Shanghai's international ETF market. But for now their hands are tied when it comes to finding ways to penetrate the onshore market and challenge the dominance of local ETF issuers. This is a point that Good avoided commenting on, except to say that the iShares team is in talks with all relevant parties in that market.
For now, Good reckons his best bet is Hong Kong. The city has blossomed as an ETF hub for the region in recent years, and Good says iShares is deeply committed to contributing to the city's future growth. He says the rule of success for ETFs boils down to the following: clients will be most attracted to products with good liquidity and low spreads, and it is here in Hong Kong that liquidity abounds.
The popularity of iShares' suite of ETF products in Hong Kong is undeniable. Trading activity for its flagship product, the FTSE Xinhua A50, in particular, represented 60% of market turnover in the city in 2008. Seven out of the 37 ETFs available in the Hong Kong market are iShares products -- and the team added four products in April and plans to double its number of offerings in 2010.
What will these products be? Jane Leung, senior director of product for Asia ex-Japan, says she can't reveal that for now. But she says they will be designed to meet specific demand in Asia-Pacific, and that the recent launch of BGI's capital market group will complement the development.
Meanwhile, integration work between BGI and BlackRock is still in the works. Does Good see BlackRock's joint venture with Bank of China in Shanghai as a potential springboard to enter the onshore retail market, as rumours suggest? Good says he is excited about BlackRock's history and track record, but the restrictions remain. Talks are taking place on the China market, but iShares is not at liberty to discuss details for now.