Samsung AM flags challenges of HK ETF business
Samsung Asset Management did not have high hopes for its first Hong Kong-listed leveraged and inverse exchange-traded funds, because of the local regulator's requirement that the first products it launched must not track Chinese or Hong Kong underlyings.
This admission to AsianInvestor by the Korean firm's top ETF executive comes after Samsung AM said in late June it was delisting its first six L&I funds in Hong Kong within a year of their launch. The first four products listed offer Japanese and Korean exposure.
Peter Lee, head of global strategy for the ETF and index team in Seoul, said: “I don’t think anybody was really as excited about those [first] products as they would be about the HSI [Hang Seng Index] and H-share products, because there is naturally a home bias in the Hong Kong market.
"Even in Korea, we have leveraged and inverse products based on overseas indices," he added, "but the turnover pales in comparison to [that of] the domestic index-based funds.”
Low trading volumes were behind the decision to delist. Termination of sub-scale ETFs is common, but Samsung closed this range particularly quickly, suggesting it felt that the products were unlikely to achieve sufficient volumes to become sustainable.
Samsung AM was the first firm to get L&I funds authorised in Hong Kong, but Lee said: “We did it only because the SFC [Securities and Futures Commission] said those were the only products they would allow initially, so it was a pre-requisite for being able to list other products later on.”
According to Hong Kong Exchanges and Clearing (HKEx), the products being delisted are the Kospi 200 Daily (2x) Leveraged Product, Topix Daily (2x) Leveraged Product, Topix Daily (-1x) Inverse Product and Kospi 200 Daily (-1x) Inverse Product. The two other funds to be terminated track the Hang Seng Futures Index: the HSI Futures ETF and the HSI Futures RMB FX ETF, bonth of which were launched in February. They will all cease trading at the end of July.
The four HSI and HSCEI funds that Samsung launched in March remain actively traded, though their trading volumes are well below those of competitor products launched at the same time by Bejing-based China Asset Management, Hong Kong's CSOP Asset Management and Korean manager Mirae Asset. The high initial volumes of certain products had led some, including Lee, to question the source of demand for the funds.
Quick traction needed
Meanwhile, market participants and observers agreed that if an ETF did not meet with immediate success, it was difficult to see that situation changing over time.
David Quah, head of ETFs at Mirae Asset Global Investments in Hong Kong, told AsianInvestor: “ETF issuers usually maintain a set of products that are in line with market demand and may delist those which do not pick up traction.”
Other ETF providers are considering their next moves. CSOP Asset Management is mulling new product launches, including possibly listing funds in Singapore.
Alvin Li, CSOP's head of ETF and index solutions, told AsianInvestor that the firm had been trying to gauge demand for new products, including leveraged and inverse exposure to other underlyings, but had no concrete plans as yet.
Mirae Asset’s Quah said his firm had seen institutions, such as proprietary desks and index arbitragers, trading its local L&I products in Hong Kong and that retail investors were also increasingly showing interest.
The firm is ramping up its programme of providing product information and seminars, he added, and has launched a Chinese-language product information webpage.
To provide the latest insights on Asia's ETF scene, AsianInvestor is co-hosting Inside ETFs Asia, the leading global ETF event, at the Grand Hyatt in Hong Kong on November 8-9. For further details, visit the website or contact Terry Rayner via email or on +852 31751963