China's CSOP in L&I ETF launch

Added 21st July 2016

In Hong Kong, CSOP Asset Management has launched a pair of leveraged and inverse exchange-traded products tracking India’s Nifty 50.

China's CSOP in L&I ETF launch

The L&I launch by CSOP followed Samsung Asset Management's listing of Hong Kong's first L&I products in June -- two products which are designed to amplify the returns of Korea’s KOSPI 200 and Japan’s TOPIX indices.

CSOP's India-focused ETFs, the CSOP Nifty 50 Daily (2x) Leveraged Product and CSOP Nifty 50 Daily (-1x) Inverse Product, offer twice the daily performance, and 1x the inverse of the daily movement of the Nifty 50, respectively.

However, the ongoing charges are comparatively high, estimated at 1.85% annually compared to Samsung’s L&I ETFs at 1.05%, and for traditional ETFs such as XIE Shares India (Nifty 50) ETF (0.86%) and db x-trackers Nifty 50 UCITS ETF (0.85%).

The costs are higher because India is not a fully-opened market, said Melody He, head of ETF and index solutions, at a briefing yesterday in Hong Kong.

CSOP plans to launch more L&I products and they will focus on commodities and emerging markets, she added.

The firm's strategy is to develop products that have little or no competition. “For instance, Japan- or Korea-related products are already quite mature with large scale and good liquidity in the region. Launching such products would overlap [with existing ones]."

But there is no serious competition for India-related L&I instruments that are available in Asia, she added.

Strong L&I markets?

Hong Kong could follow regional markets like Taiwan, Japan and Korea, where a strong appetite for L&I products has been evident since their introduction over the last few years, according to the firm.

The firm presented data for the month of December 2015 that showed average daily turnover of L&I products in Taiwan, Japan and Korea reached $136bn, $1.33bn and $228m, respectively.

During the same month, they accounted for 75%, 85% and 53% of total ETF turnover in these markets, respectively. However, L&I ETFs with a domestic focus are the most popular type.

Hong Kong’s Securities and Futures Commission so far only approved structured ETFs tracking overseas equity indices outside the mainland and Hong Kong. However, it will review that restriction after six months. CSOP said it is also considering launching products after the relaxation.

While Singapore’s regulator allows leveraged products and those with a short ratio of up to three times, they are limited to professional investors only. He, from CSOP, said her firm has no plans to list such products in the Lion City.

The firm's ETF and index solutions business, which includes another nine Hong Kong-listed ETFs (notably the CSOP FTSE China A50 ETF), now comprises about 90% of its asset under management totaling $4.4bn, He noted.

CSOP, the overseas arm of Shenzhen-based China Southern Asset Management, also manages four active funds, as well as a mainland fund selling in the SAR via the Mutual Recognition of Funds scheme. It also listed three ETFs in the US.

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