On the back of listing four exchange-traded funds (ETFs) on the Singapore Exchange (SGX) this week, Deutsche Bank has also now made a deal with Japan's Rakuten Securiites to distribute six Hong Kong-listed ETFs to the Japanese retail market.
Volumes of listed ETFs in Japan have been sufficiently modest to have Deutsche opt to have Rakuten provide access to six country-focused equity ETFs from the db x-trackers series. These include Vietnam -- making this the first ETF exposure to that market available for Japanese retail investors -- as well as China, India, Korea, Taiwan and the US.
Japanese investors already can trade ETFs listed in Hong Kong and the US via a Japanese broker, and a number of US-based ETFs are available locally. But trading US ETFs brings a withholding tax on dividends. Hong Kong-listed products do not, and they can be traded in a nearby time zone.
Deutsche Bank has also launched four ETFs on the SGX, including Asia's first ETFs tracking the performance of US and European sovereign bonds and US inflation-linked bonds.
The four products are: the iBoxx € Sovereign Eurozone TR Index ETF, which is based on more than 250 bonds issued by more than 10 eurozone countries; the iBoxx $ Treasuries TR and USD IG Inflation-linked Treasuries ETFs, both of which reference a basket of US nominal and inflation-linked sovereign bonds; and the Equities MSCI USA TRN Index ETF.
The products follow last month's launch of six ETFs, including the first in Asia to track the Brazilian stock market. Deutsche Bank's db x-trackers ETF unit was also the first to issue inverse (or 'short') and money-market ETFs in Asia, in February and August 2009 respectively.
Marco Montanari, Asia head of db x-trackers ETFs in Singapore, expects inflation-linked funds to interest investors as a way of hedging inflation. He says the US inflation-linked bond ETF should interest Asian investors, since the dollar is a reference currency in their region.
However, many observers feel inflation will not kick in significantly for at least a year or so in the US and is a more imminent challenge for emerging markets such as those in Asia, where many investors expect interest rate rises this year, perhaps as early as the first half.
As for Europe, given the debt problems facing Greece and other countries, one would think that demand for Deutsche's euro sovereign bond ETF will have been relatively low in recent weeks. "It is true that in the recent months we have observed more interest in our euro short bond ETF listed in Europe," says Montanari. "Having said that, the yield of the euro sovereign ETF could be considered as appealing now for several investors."
As for ETFs that might offer a hedge against Asian inflation, he says: "We are thinking about it, but this will require a proxy solution, given that not many markets offer inflation-linked bonds in Asia."
Montanari expects the four products to interest both traditional equity ETF clients -- such as funds of funds, insurance companies and private banks -- and potentially also corporates and central banks that are less familiar with investing in equity-linked products.
"Also, you have to consider that, in Europe, you just have futures on German bonds, so it is very complex to get easy access to all the bonds issued by European countries," he adds.
Deutsche Bank cites several reasons why it is optimistic about the prospects for bond ETFs. First, they are transparent, in that the composition is regularly and independently published. They are also diversified, as clients can get exposure to a large number of bonds covering a spectrum of maturities with just one trade.
Another benefit is convenience. Buying an ETF is easier than buying a basket of bonds, plus the client does not need to manage coupon payments. Lastly, they are liquid -- the bank can offer liquidity for the ETF in line with that of the underlying bonds.
Three of the four ETFs track fixed-income indices and are domiciled in Luxembourg, so may be more tax-efficient than offshore ETFs domiciled in the US, says Deutsche Bank.
The new ETFs -- which have already been traded on the German, Italian and UK stock exchanges -- mean the bank's db x-trackers platform now offers 20 ETFs on the SGX. Deutsche Bank has launched 39 fixed-income ETFs in Europe, with assets under management of $11 billion.