In the first of his new regular reviews of the Asian ETF markets for IndexUniverse.eu, Cris Sholto Heaton takes a look at some of the big stories over the last couple of weeks.

DB Expands

Deutsche Bank continues to be the most active new issuer of ETFs in Asia, adding four more Singapore-listed funds to the db x-trackers range over the past fortnight. The new arrivals are trackers for the MSCI India, MSCI Thailand, MSCI Malaysia and MSCI China. As usual with x-trackers ETFs these are swap-based funds that reinvest income, and they carry total expense ratios of 0.5% for Thailand and Malaysia, 0.65% for China and 0.75% for India.

For anyone who has trouble keeping up with the ins and outs of China benchmarks, the MSCI China index tracks Hong Kong-listed mainland companies. It can also include mainland B shares, the foreign-currency section of the mainland market originally set up to cater to international investors. However, the B share market is largely dead and barely features in the index at present.

Whether we really need yet more broad market trackers for India and China is questionable. DB already has Singapore-listed funds tracking the FTSE/Xinhua China 25 and the Nifty. But the Thailand and Malaysia trackers are welcome.

db x-trackers’ Thailand ETF is only the second fund listed outside the country itself, after iShares’ US-listed product. Hopefully it will do better than Lyxor’s attempt, which the provider shut down last year due to lack of interest. The MSCI Malaysia ETF joins an iShares offering in the US and a fund listed by Lyxor in Europe and Singapore. In addition, there are three domestic Malaysian ETFs listed in Kuala Lumpur: a market tracker, a bond ETF and an Islamic index fund.

Despite Deutsche Bank’s recent activity, it has yet to make a real splash in Asia in volume terms. Across Hong Kong and Singapore, there are now 59 x-trackers listings, putting the range neck and neck with iShares. But when it comes to assets under management it ranks ninth in the region with roughly 4% market share, according to the bank’s ETF research team.

The big two providers, China Fund Management and iShares, have around 20% each, although their huge China A share funds, listed in Shanghai and Hong Kong respectively, account for the bulk of that. It remains to be seen if Deutsche Bank’s own venture into A share products with its new line-up of sector indices will bring it similar clout.

The same could also be said of Singapore’s progress as an ETF platform. With these four new launches, it’s level with Hong Kong at 56 listings each. But in turnover and asset terms, Taipei (with just 14 listings) is its closest peer: both stand at around US$15-20 million/day and US$2 billion respectively. Hong Kong has a turnover of around US$260 million/day and AUM of around US$20 billion, with the iShares A50 accounting for around 60% of turnover and 30% of assets.

The only other Asia launches in the last fortnight were four physical metal ETFs in Japan, with Mitsubishi UFJ floating gold, silver, platinum and palladium funds. They follow a range of similar products from ETF Securities last year, while State Street floated the market’s first gold ETF in 2008. Product details were not readily available at time of writing.

AgBank’s Record-Breaking IPO?

The big news in Asian markets in recent weeks has been the impending float of Agricultural Bank of China. Pricing hasn’t yet been officially announced for this dual IPO in Hong Kong and Shanghai, but reports indicate that it is set to raise US$19.2 billion. If so, the 15% over-allotment option may allow it to beat rival Industrial and Commercial Bank of China’s record for the largest ever IPO.

Given its size and importance, the stock will end up in plenty of China indices on the next reshuffle – which should make ETF investors pause to think. Most China trackers already have a lopsided weighting towards state-controlled megabanks – 45% in the case of the FTSE/Xinhua China 25 – and we could do without it going higher. And while the guiding principle of indexing may well be to avoid stock selection, many investors looking at China banks might wonder if this is the time to make an exception.

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