Tag Archives: China ETFs

A Black Eye For BlackRock China ETF?

MarketsMuse.com ETF update profiles a less than tasty example of how not to select certain offerings from the menu of China ETF products with a snapshot of a seemingly sour taste investors might be left with after consuming Blackrock’s iShares FTSE A50 China Index (HKG: 2823). Below extract is courtesy of reporting by Bloomberg LP’s Elena Popina and Boris Korby “The 80% BlackRock ETF Return That Shortchanged China Stock Bulls.”

The $9.1 billion iShares FTSE A50 China Index ETF, an exchange-traded fund designed to track returns of the 50 largest companies traded in Shanghai and Shenzhen, has underperformed its benchmark by a whopping 29 percentage points on a total return basis over that span.

The cost to investors? More than $900 million in unrealized gains, according to data compiled by Bloomberg.

ETFs such as BlackRock’s, which popularized the use of complex derivatives as a way for foreigners to tap into China’s growth potential, are now becoming unintended casualties as the nation opens up its capital markets. As more foreigners gain direct access to yuan-denominated A shares on mainland bourses, demand for the derivatives has plunged. That’s unmoored the ETFs from their benchmarks and robbed investors of returns.

“It’s not providing what it advertised to do,” Ajay Mehra, the head of equities at Salient Partners LP, which oversees $27 billion, including FTSE A50 China Index ETF shares, said by phone from New York. “This tracking error has led to substantial underperformance over the past year, which makes it less attractive as an access vehicle.”

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China Stock Craze Will Go A Step Further With First Leveraged ETF

In the past year alone, investors have invested more than $2 billion into ETFs that invest in China’s stocks. MarketsMuse update profiles the new ETF, The Direxion Daily CSI 300 China A Sharell 2X Shares (CHAU), this ETF is the first in China-focused ETF of its kind in the US. This MarketsMuse blog update is courtesy of Bloomberg Business’s Elena Popina and Boris Korby’s article “China Stock Frenzy Gets More Manic With First Leveraged ETF“, with an excerpt below. 

Want to double down on China’s world-beating stock rally? Now there’s an exchange-traded fund for that.

Direxion Investments is starting the first ETF that seeks to provide twice the daily return of mainland Chinese stocks using leverage, according to Andy O’Rourke, chief marketing officer for the New York-based fund provider.

The CSI 300 Index, which the ETF will track, has climbed to a seven-year high amid a frenzy of stock purchases by Chinese retail investors as the government eased monetary policy to counter a slowdown in the world’s second-largest economy. The ETF will be the first in the U.S. to use derivatives to amplify the return of mainland Chinese stocks, or so-called A shares, a market to which foreign investors until recently only had limited access.

“It was only a matter of time before a leveraged China A-share ETF came out trying to capitalize on the increased interest and flows into the area,” Eric Balchunas, a Bloomberg Intelligence analyst, wrote in an e-mail on Tuesday.

To continue reading about this new ETF for China’s stocks, click here.

LSE Scores Listing of China’s First ETF

MarketMuse blog update profiles the London Stock Exchange’s (LSE) Wednesday announcement that it had welcomed their first China ETF, Commerzbank CCBI RQFII Money Market UCITS ETF. This is an exciting new step as China hopes to have more offshore trading in the very near future. This ETF offers the abiltiy for those in the LSE to invest in China’s inter-bank market. This MarketMuse update is courtesy of BloombergBusiness’s Will Hadfield. An excerpt of the article, “The Yuan Comes to Europe as LSE Hosts ETF Tracking Chinese Money” is below.

A Chinese bank has launched the first money-market fund denominated in yuan that’s based in Europe, a milestone in the currency’s emergence as a major force in world markets.

China Construction Bank Corp.’s new exchange-traded fund, which is listed on the London Stock Exchange and available to investors throughout the European Union, is the first product to give Western investors access to securities in China’s interbank bond market. The fund, called the Commerzbank CCBI RQFII Money Market UCITS ETF, started trading Wednesday.

The ETF could be the first of many Chinese-currency funds to launch in developed markets as the country’s banks seek to attract investors with higher returns than they could get from dollar-, euro- or pound-denominated accounts.

To read the rest of the article from BloombergBusiness, click here

China ETF: One From Column A, One From Column B :$AFTY

MarketsMuse ETF market update profiling the latest A-Shares initiative out of China is courtesy of extract from coverage by ETFTrends’ Todd Shriber..

Todd Shriber, ETFtrends.com

CSOP Asset Management is not a household name in the U.S., but the Hong Kong-based asset manager could change that with today’s launch of its first U.S-listed exchange traded fund, the CSOP FTSE China A50 ETF (NYSEArca: AFTY).

The CSOP FTSE China A50 ETF is first ETF to be listed independently in the U.S. by a Chinese asset management company. Previous versions of A-shares ETFs to list in the U.S. have been partnerships between a U.S.- or Europe-based ETF issuer and a China-based asset manager. Those partnerships are pivotal to ETF issuers being able to offer U.S. funds that feature physical access to China’s A-shares because a Renminbi Qualified Foreign Institutional Investor (RQFII) meets Chinese regulatory requirements to be a foreign owner of A-shares.

For the full story from ETFtrends.com, please click here

China ETFs Seeming More Like The Year Of The Bear

MarketMuse update courtesy of ETFTrends’ Todd Shriber looking at China related ETFs. 

In the Chinese zodiac, 2015 is the year of the goat, but a popular exchange traded fund tracking China’s onshore equities is getting bearish treatment.

The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (NYSEArca: ASHR), the largest U.S-listed A-shares ETF, had 6.3% of its shares outstanding sold short as of Feb. 23, reports Belinda Cao forBloomberg.

ASHR surged 51.3% last year, making it one of 2014’s best-performing non-leveraged ETFs. That performance was better than quadruple the showing by the iShares China Large-Cap ETF (NYSEArca: FXI), the largest U.S.-listed China ETF. However, the 2014 A-shares rally has those stocks looking richly valued relative to their Hong Kong-listed counterparts, encouraging traders to up bearish bets on ASHR.

“The number of shares borrowed and sold short to profit from a decline in Deutsche Bank’s A-share ETF was 1.8 million on Feb. 23. That’s close to the record of 2.4 million, or 8.2 percent of total shares outstanding, reached Feb. 13,” Bloomberg reports, citing Markit data.

However, another catalyst could be encouraging the increased bearish bets on ASHR. On Jan. 21, Deutsche Asset & Wealth Management (DAWM) was forced to limit creations of new shares in ASHR because increased demand for the ETF was forcing the fund o bump up against their respective Renminbi Qualified Foreign Institutional Investor (RQFII), which allows the funds to purchase A-shares equities

Creation limits often lead to ETFs, particularly those with exposure to markets that are closed during the U.S. trading day, trading at premiums to net asset value. Professional traders then look to profit from the gap between the ETF’s market price and lower NAV by shorting the ETF. Since the start of 2015, ASHR has traded at a premium to its NAV in 26 days, according to DAWM data.

Although the most recently announced creation limit for ASHR has not yet been lifted, it should be noted the ETF was affected by the same scenario twice in 2014 and DAWM was quick to get ASHR’s RQFII limit increased.

With ASHR’s 2014 surge, some money managers now prefer H-shares to A-shares, but that means they are also missing out on a notable rally in A-shares small-caps.

The Deutsche X-trackers Harvest CSI 500 China A-Shares Small Cap Fund (NYSEArca: ASHS), which was subject to a second creation limit last November, is up 12.1% this year. ASHS tracks the CSI 500 Index of Shanghai- and Shenzhen-listed small-caps.

The Market Vectors ChinaAMC SME-ChiNext ETF (NYSEArca: CNXT), the younger of the two A-shares small-cap ETFs, has surged 23.7% year-to-date, making it 2015’s top-performing non-leveraged ETF. CNXT, which is heavily allocated to mid-caps, tracks the SME-ChiNext 100 (SZ399611), which provides exposure to the 100 most liquid mid- and small-cap stocks that trade on the Small and Medium Enterprise (SME) Board and the ChiNext Board of the Shenzhen Stock Exchange (SZSE).


China’s Stock Connect Cooks Up ETF Plan: One from Column A, One From Column B

MarketsMuse update courtesy of extract from BrokerDealer.com and Traders Magazine via Bloomberg LP

(Bloomberg) — China is considering allowing international investors to buy bonds and exchange-traded funds (ETFs) through the link between the Hong Kong and Shanghai bourses.

“We can offer more diversified products,” Huang Hongyuan, president of the Shanghai Stock Exchange, said through a translator at a presentation in Hong Kong on Jan. 20. “Perhaps we can move to ETFs or bonds; we can perfect further transaction arrangements.”

Since its launch last November, the link — dubbed Stock Connect — has only enabled investors to trade stocks listed on the major indexes in the two cities, with transactions capped at 23.5 billion yuan ($3.8 billion) a day. Including fixed income would give Hong Kong-based fund managers greater access to China’s 1.32 trillion yuan of exchange-traded bonds.

The proposal “is a progressive step for China to open up the capital markets,” Roy Teo, a Singapore-based strategist at ABN Amro NV, said in an interview in Hong Kong on Wednesday. “When the market opens up the difference between borrowing costs in Hong Kong and China would reduce.”

Government notes due June 2023 yield 3.49 percent in Hong Kong’s Dim Sum bond market, while similar-maturity securities in Shanghai pay 3.80 percent, according to data compiled by Bloomberg.

Valuation Gap

The valuation gap between dual-listed stocks in Shanghai and Hong Kong has widened since the Stock Connect opened on Nov. 17. The premium on mainland shares to those in Hong Kong was about 2 percent when the link began and ended last week at a three-year high of 33 percent, according to the Hang Seng China AH Premium Index.

China is loosening control of its currency and financial markets in an effort to attract foreign investment and increase global use of the yuan. The People’s Bank of China said Tuesday it will move forward with yuan capital-account convertibility and encourage greater cross-border use of the currency. The world’s second-largest economy needs its companies to diversify their sources of funding to mitigate borrowing risks.

To search for local broker-dealers across Asia, Brokerdealer.com provides a comprehensive database of regional brokers in China and surrounding countries.

For the entire story, please click here

Chinese-Flavored ETFs: Shanghai-Hong Kong Stock Connect

MarketsMuse extends our thanks re: below extract, courtesy of AsianInvestor.net

asianinvestorChina Asset Management and China Southern Asset Management are racing to list the first exchange-traded fund via the Shanghai-Hong Kong Stock Connect, after getting regulatory approval last week.
But this comes amid muted initial volumes for the trading link, leading to suggestions that the mainland securities regulator has encouraged the moves to help promote the scheme.

Classed as qualified domestic institutional investor (QDII) products, they will be cheaper and will have quicker settlement cycles than existing QDII ETFs. They will trade through Stock Connect until the cap is reached, then they can use QDII quota.

China Southern, the fifth biggest mainland fund house with assets under management of Rmb200 billion ($32.5 billion), got the green light from the China Securities Regulatory Commission (CSRC) on December 2. Approval came the following day for China AMC, the country’s second largest fund manager with Rmb348 billion.

Both firms plan to launch ETF products tracking Hong Kong’s Hang Seng Index using the southbound quotas of the Stock Connect trading link. China AMC’s new fund will join its existing Hang Seng ETF that buys Hong Kong equities via the QDII scheme, while this will be the first such fund for China Southern.
Each product will charge a 0.5% management fee and 0.1% custody fee; these are 25% lower than existing QDII equity ETFs. They will be classed as QDII funds. more

China Marts Open For Lunch & Dinner: ETFs Hot Menu Item; Fortune Cookie Reviews Say: “Sweet, Sour & Soggy”

chinesemenuA MarketsMuse special update, courtesy of compiling various columns from Bloomberg, ETF.com, Fortune and a special treat: this piece was sponsored by Mr. Chow’s! (see below)

After much fanfare, the “Shanghai-Hong Kong Stock Connect” is officially connected and ostensibly, this will be the link between brokers, dealers, ETF Issuers and global investors seeking access to a menu of mainland China stocks and bonds, whose market value is more than $4.2tril (if anyone knows another acronym for ‘Trillion”, please email us or simply comment below!). Even if trade volumes during the first 2 days appeared soggy (which some attribute to aversion to MSG, not China stocks or ETFs), this is a story that, according to many experts, is a watershed moment.

Noted Neil Azous, principal of global macro strategy think tank, Rareview Macro LLC,  “This is a transformational event. Though the first day ‘scorecard’ indicates that retail/local investor support in Shanghai has proven successful out of the gate, institutional interest is still nascent, as evidenced by the big drop in Hang Seng share prices yesterday.” Added Azous, “Because the liberalization of markets is 1 of 4 key anchors to China’s long-term game plan, it is easy to expect that the opening of China markets to foreign investors might be incremental, but also integral to the evolution of the global financial marketplace.”

Below please find a collection of excerpts and ETF mentions that MarketsMuse has ‘cherry-picked’ from news outlets: Continue reading

China ETFs: A Chinese Menu of Share Class Descriptions

Courtesy of Dennis Hudacheck

Investing in China is tricky. There are now more than 20 China-focused ETFs to choose from, ranging from size and style funds to sector-specific funds. As if sifting through expense ratios, liquidity and holdings isn’t enough, China investors have another big, fundamental factor to consider: Chinese share classes.

Foreign investment in China is still restricted: A U.S. investor cannot simply open a brokerage account and trade locally listed Chinese shares. As a result, there are multiple shares classes of Chinese companies floating around on various exchanges, allowing investors different ways to access this complex market.

Depending on the underlying index that an ETF tracks, some funds are eligible to hold only a certain type of shares. This matters because the different share classes an ETF is eligible, or ineligible, to hold can significantly impact the fund’s performance, and ultimately determine the type of Chinese companies in the portfolio.

Chinese share classes, especially as they relate to ETFs, are often misunderstood—or worse, ignored altogether. We at IndexUniverse think investors deserve better, so we prepared this document to provide insight and guidance on the topic to help investors make an informed decision on choosing the right China ETF. Continue reading