China and Hong Kong ETF markets grow closer with feeders launch
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Hong Kong’s CSOP Asset Management has rolled out its first master-feeder cross-listed exchange traded fund in partnership with Beijing-based Yinhua Fund Management, making available the second suite of products in the scheme that links Hong Kong and China ETF markets.
Yinhua FM has also listed a feeder ETF on its home exchange in Shenzhen.
The CSOP Yinhua CSI 5G Communications Theme ETF, which listed on the Hong Kong exchange last week, will invest at least 90 per cent of its net asset value into the Yinhua CSI 5G Communication ETF via the renminbi qualified foreign institutional investor quota.
The new Hong Kong ETF had raised around $5m at inception and charges an annual management fee of 0.99 per cent.
The feeder ETF provides Hong Kong investors with direct access to the Shenzhen-listed master ETF run by Yinhua FM, with which CSOP AM has formed a partnership under the new cross-listing framework.
The master Yinhua CSI 5G Communication ETF follows the performance of the CSI 5G Communication Index, which focuses on China-listed stocks involved in 5G communication technology.
In China, 5G is a key part of the industrial development strategy and companies linked with 5G technology are projected to see strong growth in the coming decade due to country’s new infrastructure plan, according to CSOP AM. The 5G index, which was launched in 2015, has outperformed Shenzhen’s ChiNext market board by 10 per cent.
Meanwhile, Chinese manager Yinhua FM has also listed a feeder ETF on the Shenzhen exchange that invests in CSOP’s Hong Kong-listed ICBC CSOP S&P New China Sectors ETF. An application for the feeder was submitted to the China Securities Regulatory Commission on July 22.
Yinhua FM’s feeder fund had attracted Rmb900m ($134.7m) of inflows by the end of September, the company said in a statement.
This is the second set of master-feeder ETFs to be launched under the new cross-listing scheme. Hong Kong-headquartered Hang Seng Investment launched its Hang Seng Harvest CSI 300 Index ETF, which feeds into a master Shenzhen-listed ETF run by Beijing-based Harvest Fund Management earlier this month.
Harvest Fund Management, Hang Seng's mainland Chinese partner, has also listed its Harvest Hang Seng China Enterprises ETF on the Shenzhen bourse. It will feed into the Hong Kong-traded Hang Seng China Enterprise Index ETF.
Ignites Asia first revealed that Hong Kong and Shenzhen’s stock exchanges were close to rolling out the new ETF pilot scheme in July. Four ETF issuers had formed two separate ties for the debut of the new link.
Hong Kong’s Securities and Futures Commission and the CSRC announced the establishment of the framework at the end of August, approving two pairs of ETFs.
The newly listed ETFs mark an “exciting next chapter in cross-border ETFs”, said Charles Li, Hong Kong's Stock Exchange's chief executive, during a virtual listing ceremony held October 23.
“The scheme facilitates access to new but established pools of liquidity and offers broader investment opportunities in both markets,” Mr Li added.
Melody He, Hong Kong-based head of sales and product strategy for CSOP AM, is hopeful that the new scheme will be successful in bringing new products to investors in both markets.
She noted that the ETF feeder scheme was a “good trial” for the planned, more comprehensive, ETF Connect programme between Hong Kong and China
Investors are still waiting for definitive news from exchanges and regulators on the programme, which will allow products domiciled in one market to be sold directly into the other jurisdiction, and for ETFs to be traded as flexibly as equities on the stock connect schemes linking the Hong Kong stock exchange with Shanghai and Shenzhen.
The debut of the ETF feeder scheme has made some question whether the ETF Connect will be permanently put on hold.
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However, Hong Kong’s Securities and Futures Commission has reaffirmed that there are still plans to move ahead with ETF Connect. Trevor Lee, senior director of investment products division at the SFC, told delegates at a fund forum earlier this month that the ETF feeder scheme was “not a replacement” for ETF Connect and that the regulator was still working with mainland Chinese authorities to push forward its preparation.
Some industry observers believe the rollout of the master-feeder ETF scheme was driven by growing convergence in the financial services industry across the Greater Bay Area that links Hong Kong with China’s neighbouring Guangdong province.
CSOP AM hopes to continue to expand its product offering under the programme.
“For example, we also have the CSOP Hang Seng Tech ETF suitable for cross-listing,” Ms He said. “If possible, we also have plans to bring the ETF to China onshore investors through the cross-listing scheme.”
*Ignites Asia is a news service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at ignitesasia.com.