Investors exit China A-shares ETF, discouraging new product launches

PUBLISHED : Monday, 24 June, 2013, 12:00am
UPDATED : Monday, 24 June, 2013, 4:59am

The most popular exchange-traded fund that tracks the performance of mainland shares reported record redemptions this month, a development that may discourage asset managers from launching new products.

The withdrawal of funds from the ETF is in line with a broader capital outflow from Asian equities, after the yield of 10-year US treasuries rose following the US Federal Reserve's suggestion it could reduce its stimulus measures.

Investors have withdrawn 800 million yuan (HK$1 billion) from the FTSE China A50 Fund this month, the most since its inception in August last year. CSOP Asset Management manages the fund.

"This is surely a blow to the industry as CSOP's ETF has been the most favoured by institutions, partly because the FTSE A50 focuses on selected companies only, and its ETF can be used for hedging purpose in Singapore," said a market participant who declined to be identified. "Many institutions may now postpone launches, fearing they will not meet their fundraising targets."

In a report, Jefferies Investment Advisers said mutual fund and ETF investors were net sellers over the past week, disposing of US$1.6 billion of investments. Over the past four weeks, they have withdrawn US$10 billion from equity markets in Asia.

The volatile environment is tough for asset managers planning launches of renminbi qualified foreign institutional investors products.

Earlier this month, Hang Seng Bank became the first local bank to obtain an investment quota under the amended RQFII scheme. It said it would use its fundraising allocation to launch an RQFII ETF in two or three month at the earliest. In addition, China Universal Asset Management had been planning to launch its RQFII ETF this month.

Beijing granted fundraising allocations under the RQFII scheme worth 15.6 billion yuan to 14 financial institutions last month, the biggest monthly quota this year, according to the State Administration of Foreign Exchange, which is responsible for managing the nation's foreign exchange reserves.

As of mid-June, 95.7 billion yuan had been granted under the scheme.

"We don't see the immediate return to competitiveness of the ETFs in terms of fee structure and return, when compared to either onshore debt or dim sum bonds, especially at a time of high market volatility," said Z-Ben Advisors analyst Cindy Qu.

Mainland asset managers and foreign institutions have been clamouring to launch their own RQFII products since Beijing said in December last year it would grant an extra 200 billion yuan of RQFII quota. The scheme was opened to foreign institutions in a bid to revive the onshore bond and equity markets.