Amundi targets investors with Hong Kong’s cheapest FTSE China A50 exchange traded fund

Banking sector is the priority for foreign investors in A-share market, says France-based asset manager

PUBLISHED : Monday, 31 October, 2016, 8:32pm
UPDATED : Monday, 31 October, 2016, 11:22pm

Amundi Asset Management, the largest European asset manager in terms of the global assets under management, on Monday launched its FTSE China A50 exchange traded fund (ETF) that is Hong Kong’ s cheapest in the category.

The new fund will track the FTSE China A50 Index, an index comprising the 50 largest A share companies listed on the Shanghai and Shenzhen bourses and has about US$7.2 billion worth of assets benchmarked to it.

France-based Amundi is the fourth asset manager after CSOP Asset Management, Bosera Asset Management and BlackRock Asset Management North Asia to offer an FTSE China A50 ETF in the city. However, its estimated charges of 0.48 per cent are the lowest, when compared with the average 1.03 per cent levied by its peers for similar funds.

“Expenses matter when you are selecting an ETF... investors are becoming more cautious on fees and liquidity and we are monitoring these two parameters extremely closely,” Gaëtan Delculée, head of Amundi ETF, Indexing & Smart Beta Sales France & Luxembourg said during a briefing in Hong Kong.

“I think ETF providers need to provide the most cost efficient products for customers,” he said.

Other fund managers are also gearing up for similar fee reductions in the city. Vanguard, the world’s second-largest asset manager has slashed fees for its five Hong Kong ETFs to the lowest in each category on October 17 after BlackRock, the biggest player, lowered rates for two of its Hong Kong ETFs in July.

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“We see lots of competition in the fee structure, but we are comfortable because we started our business with a competitive total expense ratio. Our cost-efficiency structure is quite popular,” Delculée said. Total expense ratio is a measure of the total costs associated with managing and operating an investment fund.

The FTSE China A50 Index has emerged as one of the most popular ETF benchmarks in Hong Kong after the daily turnover of CSOP and BlackRock funds were among the top six out of the 176 listed ETFs so far this year, data from Hong Kong Exchanges and Clearing showed.

The mainland banking sector accounts for 44.4 per cent of the index in terms of market value, followed by the insurance sector with 13 per cent.

Anthony Ho, chief investment officer of Amundi Asia (excluding Japan) Equities, said the banking and insurance sectors are attractive to investors due to their lower volatility, even though China is shifting to a more consumption-driven economy.

“New-economy sectors provide attractive investment opportunities but are not the only opportunity available right now. You need to have some investments with lower volatility,” Ho said.

Banking sector is at the bottom of the cycle with the market expecting zero profit growth, but the earnings of banks are expected to pick up next year, Ho said, given that long-term household loans, most of which are mortgage loans, accounted for 41 per cent of all the new loans this year and the pace is accelerating, he said.

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Cheap valuations — 0.7 per cent price-to-book ratio— and dividend yields of 5 per cent also makes the banking sector attractive, he added.

“The population shift due to urbanisation also boosted some old-economy sectors such as insurance. Premium growth of life insurance companies was about 30 per cent this year. It (insurance) is a high-growth sector that has benefited from demographic shift,” Ho said.

Overseas investors have a preference for traditional sectors and blue chips trading at low valuations and offering good dividend yields this year, according to combined data from Bloomberg and UBS.

China’s banking sector has mostly been their priority, as over 40 per cent of the holdings through the Qualified Foreign Institutional Investor channel were in the sector, the data showed.

Ho said that China’s A-share market had low correlation with overseas markets, which is an option of diversification for foreign investors.

The listing marks Amundi’s second Hong Kong ETF after its Hang Seng HK 35 Index ETF that was launched in April this year. Delculée said the fund manager will continue to focus on Hong Kong market for Asian expansion, without any plans for Korea or Taiwan in the near term.