Asia ETF Roundup – March 2012

CSRC Expands RQFII and QFII Quota

The China Securities Regulatory Commission (CSRC) announced on its website that it has expanded its Renminbi Qualified Foreign Institutional Investor (RQFII) and Qualified Foreign Institutional Investor (QFII) quota by Rmb50bn (US$8bn) and US$50bn respectively. The total RQFII quota will be expanded to Rmb70bn (US$11bn) from its previous level of Rmb20bn, while total QFII quota will be expanded to US$80bn from US$30bn. The increase in the RQFII quota will further facilitate the back flow of RMB to China and promote internationalisation of the currency; while the increase in QFII quota will attract more long term overseas capital to the domestic market.

RQFII ETFs Coming to HK Soon
Along with the announcement of the increase in the RQFII quota, the CSRC will allow financial institutions under the RQFII program to issue RMB denominated ETFs investing in China A-Shares to be listed in Hong Kong. As we discussed in our article “RMB & ETF in Hong Kong – The Coming Together”, the extension of the RQFII scheme to the ETF space will not only allow investors to utilise their RMB deposits, but also enable direct exposure to the A-share market--exposure which is currently only available via synthetic ETFs.

First China Inter-market ETFs Approved
The China Securities Regulatory Commission (CSRC) approved two ETFs that track the CSI 300 index--the first inter-market ETFs in China. The two ETFs are managed by Harvest Global Investment and Huatai-PineBridge. The two ETFs have started unit issuance from 5 April 2012. While the ETFs track the same index, the ETF managed by Huatai-PineBridge has a T+0 settlement for creation and redemption while the one managed by Harvest Global Investment has a T+2 settlement. The Huatai-PineBridge ETF is the first ETF in China to settle on a T+0 basis. Market participants expect that the Huatai-PineBridge ETF’s T+0 settlement feature could facilitate high frequency trading, which could in turn reduce hedging costs.

Singapore to Review Commission-based Financial Advisory Industry
On 26 March 2012, the Monetary Authority of Singapore (MAS) announced its intention to perform a review of the financial advisory industry. The aim of the review includes: (1) to raise the competence of financial advisory representatives; (2) raising the quality of financial advisory firms; (3) making financial advice a dedicated service; (4) lowering distribution costs of insurance products and (5) promoting a culture of fair dealing. The review touched on reviewing the commission-based financial industry and cited the fact that the UK and Australia are moving towards a fee-based model. From the experience of the US, the move from commission-based to fee-based financial advice has been one of the key driving forces of the growth in ETF market.

New Launches and Listings

CIMB Principal lists an ETF on the Singapore Stock Exchange
On 8 March 2012, CIMB Principal listed an ETF on the Singapore Stock Exchange, namely CIMB S&P Ethical Asia Pacific Dividend ETF (P5P), tracking the S&P Ethical Pan Asia Select Dividend Opportunities Index. The index tracks the performance of ethically conscious, high dividend

yielding stocks from the Pan Asia region. Constituent stocks must have less than 5% revenue exposure to alcohol, gaming, pork, and tobacco and be within the top 40 highest yielding stocks in the Pan Asia region. This is the second ETF managed by CIMB Principal in Singapore. In addition to its Singapore listed ETFs, CIMB Principal also manages two ETFs in Malaysia.

Canara Robeco and Motilal Oswal list Gold ETFs in India
During the final week of March, Canara Robeca and Motilal listed two gold ETFs in India on the National Stock Exchange of India and the Bombay Stock Exchange, namely Canara Robeco Gold ETF and Motilal Oswal MOSt Shares Gold ETF. These are the 13^th and 14^th gold ETFs in the Indian market. While these ETFs add to the crowded gold ETF market, investors can redeem physical gold as little as 10 grams of gold with these ETFs whereas other ETFs offer physical redemption at much larger quantities--typically greater than a kilogram.

List of Newly Launched ETF in March 2012




Jackie Choy is an ETF Strategist with Morningstar.