RQFII ETFs no threat, says iShares chief

BlackRock’s exchange-traded funds arm is putting a new sales-support function in place, but has no plans to launch an RQFII ETF investing in A-shares.
RQFII ETFs no threat, says iShares chief

iShares’ new Asia-Pacific head is confident its FTSE A50 China Index exchange-traded fund will retain its popularity in the face of newly launched A-share ETFs under the RQFII scheme.

Jane Leung, who started in her role in July, also explains why BlackRock’s ETF unit is setting up a new team to support the sales force. This is an ‘ETF sales specialist function’ that will help clients and distributors better understand the technical aspects of ETFs.

Led by Suresh Singh, previously Asia ex-Japan head of private wealth at iShares, the unit will incorporate employees from existing teams. The firm declined to comment on whether he had been or would be replaced.

Singh has been at BlackRock since April last year, having joined from Macquarie. He has also worked for Bankers Trust Australia, National Australia Bank, State Super Investment Management and the State Bank of New South Wales.

The technical expertise the function will provide will cover topics such as product liquidity, index construction and comparisons between competing products. The team aims to help drive sales and AUM growth and develop a strategy – in partnership with the sales force – around client engagement, says iShares.

Leung declined to provide more details, apart from to confirm the company is still working on the details and “looking for the right roles for the right people”.

Meanwhile, asked whether iShares sees the recent introduction of RQFII A-share ETFs as a threat to its FTSE A50 index tracker, Leung was sanguine. She says she welcomes any changes China brings in to open the market as a "big positive", but that iShares has no plans to launch its own RQFII ETF. 

The FTSE A50 ETF – while not a physically backed fund – is built robustly in terms of risk management involving multiple counterparties, with ring-fenced collateral, she notes.

It is also already liquid and transparent, with AUM of $5.73 billion as of June 30 and an average daily trading volume of more than $100 million in the first half of 2012. It remains the biggest A-share ETF by assets.

It takes time for other products to build up liquidity, adds Leung, and in any case even after these products come in, combined RQFII (renminbi qualified foreign institutional investor) and QFII assets will still only account for 3% of the overall A-share market. That is not large enough to make an impact, she argues.

Other providers make a similar point. Joseph Ho, Asia-Pacific head of ETFs at Credit Suisse, argues that physically backed A-share ETFs will really only gain traction once they can be bought with Hong Kong dollars.

Trading in RMB remains the main obstacle for these products, he adds, and many brokers in Hong Kong don’t yet have the capabilities to handle RMB settlement. 

Another trend Leung points to in Chinese equity investment is that mainland investors are increasingly using ETFs to buy stocks in a sectoral fashion. China is one of the few Asian equity markets big enough to allow investment by industry, and domestic investors are getting better at understanding these kinds of allocation, she says.

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