Cris Sholto Heaton takes a look back over events in the Asian ETF markets in the last couple of weeks.

Chinese Consumers In Focus

Three new ETFs launched in Hong Kong this week, all on one increasingly popular theme: the Chinese consumer. First up was a product from Da Cheng, a name that probably means little outside the Chinese mainland but is actually one of the country’s oldest fund management groups, despite it having been founded only a decade ago – a testament to how quickly the financial system has had to develop.

The firm took its first steps into the ETF market with a CSI China Mainland Consumer tracker, a combination of the consumer staples and discretionary categories. Foods, beverages and tobacco account for around 30% of the basket, consumer durables and apparel 17%, automobiles 17% and retailers 16%.

Since the ETF is based on mainland-listed A shares, few of the companies included are likely to be familiar to most foreign investors, but they include major local businesses such as baijiu liquor distilleries Kweichow Moutai and Wuliangye, electronics retailer Suning Appliance and carmaker SAIC. The total expense ratio is 0.99% and since this is an A share fund, the product is swap-based.

iShares, meanwhile, followed up with its latest A share products in the shape of the CSI A-Share Consumer Staples and CSI A-Share Consumer Discretionary ETFs. These expand on the firm’s existing energy, financials and materials trackers. The constituents are much the same as for the Da Cheng fund, but divided into two sectors. Again, these are swap-based funds with a 0.99% total expense ratio.

Based on data on the providers’ websites, iShares’ two funds have taken in around US$50 million each so far, compared with about US$20 million for the Da Cheng product and around US$25 million for the db x-trackers CSI 300 Consumer Discretionary ETF, which was launched in June. For those concerned about counterparty risk, the iShares funds spread exposure more widely, with six or seven counterparties as opposed to two for the Da Cheng fund and only Deutsche Bank itself for db x-trackers’ extensive series of A share sector funds.

Malaysia saw the only other new listings in Asia this week, both from local financial group CIMB. The first is a FTSE Asean 40 product that tracks a benchmark of the top 40 stocks from Malaysia (13), Singapore (12), Indonesia (7), Thailand (7) and the Philippines (1). The new launch is actually a feeder fund for a Singapore-listed ETF that has a total expense ratio is 1%, to which the Malaysia feeder will add a further 0.08%.

The FTSE Asean 40 is a typical emerging markets index, with over 40% of the basket in financials and 15% in telecoms, although the quality of many of the underlying companies is perhaps better than usual. A 15% weighting in consumer goods may be slightly misleading for investors who aren’t aware that Asian indices typically class palm oil plantation companies such as Sime Darby and IOI – who also have substantial real estate interests – as consumer goods.

CIMB’s second launch was that all too familiar staple, a FTSE/Xinhua China 25 tracker. This index consists of the 25 largest and most liquid Hong Kong-listed mainland companies; unfortunately, as a result it’s badly unbalanced. Around 45% is in financials, 20% in telecoms and 25% in energy and metals combined. This product is a full ETF listing rather than a feeder and carries a total expense ratio of 0.6%.

These two products are the first in Malaysia to be based on international stocks and take the total ETF listings on Bursa Malaysia to five. Given the country’s aspirations to make Kuala Lumpur a financial centre and the relative sophistication of its financial system by regional standards, that’s disappointingly low.

The two largest products are the Shariah-compliant MyETF DJ Islamic Market Malaysia Titans 25 ETF, with US$200 million in assets under management, and the ABF Malaysia Bond Index Fund, which holds US$160 million, and turnover in both is currently under US$100,000 a day. Bursa Malaysia has recently introduced several new policy measures for its ETF section, including a new market making framework, smaller minimum bid sizes and new securities lending rules, all in the hope of boosting liquidity and attracting more listings.

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