China ETFs gain traction

Added 30th August 2016

Mainland exchange trade funds reported strong August inflows, in particular the first ETF tracking China's State-owned enterprises.

China ETFs gain traction

E Fund’s Shanghai-listed Hang Seng China Enterprises Index ETF (tracking H-shares) saw assets under management top RMB 10bn ($1.5bn), while China’s first state-owned enterprises tracker fund, developed by China Universal, raised RMB 15.2bn before listing on Monday.

The former ETF has become the first QDII fund reaching the RMB 10bn size, thanks to the recent announcement of the Shenzhen-Hong Kong Stock Connect, and investors craving for non-renminbi assets. The ETF tracks the Hang Seng China Enterprises Index, or the largest H-shares.

The qualified domestic institutional investor program, with designated quota, so far remains the key channel for domestic money to invest offshore.

So far there are four ETFs listed in the mainland which invest in Hong Kong stocks. China Asset Management has two and China Southern Asset Management and E Fund each have one.

Foreign managers are expecting that Hong Kong-listed ETFs will be allowed to trade cross-border under the stock connect scheme next year.

Tracking SOEs

Meanwhile, the CSI Shanghai SOE ETF raised RMB 15.2bn, making it the third largest ETF by fundraising in China.

The fund tracks the CSI Shanghai SOE Index, which is comprised of 66 Shanghai-based state-owned enterprises.

Notably, institutional investors accounted for 95% of the assets before the ETF listed on Monday. However, China consultancy Z-Ben Avisors noted that seven out of the 10 top shareholders are Shanghai-based state-owned firms.

“This is a key linchpin in the municipal government’s road to SOE reform,” Z-Ben noted.

“The ETF is a new source of liquidity for Shanghai’s SOEs. It’s much easier to trade shares of the fund than those of its underlying holdings and it presents the ETF investors with a broader exposure to state-backed firms, allowing them to diversify risk,” it noted.

“This fund draws a blueprint for more such regional and national ETFs. The opportunity to build these likely won’t be limited to domestic managers.” 

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