Cris Sholto Heaton looks back at the big stories in the Asian ETF market over the last couple of weeks.

Quiet On The Launch Front

It has been a quiet fortnight for new ETFs in Asia, with a new commodity product in Korea the only addition. Mirae Asset Management listed a tracker for WTI crude oil futures in its Tiger ETF range; the new fund is only the second commodity ETF on the Korean market, the other being a gold ETF from Hyundai.

The Mirae fund tracks the S&P GSCI Crude Oil Enhanced Index, which attempts to reduce losses caused by rolling futures forward when the futures curve is upward sloping. It does this by using a “dynamic rolling rule” whereby it purchases longer dated contracts when the gap between the price of the second and first month futures contracts is greater than 0.5%. The fund has a total expense ratio of 0.7%.

Taiwan And Thailand Pursue ETFs

Despite the absence of launches, there were a handful of reports of possible developments in the pipeline. According to Bloomberg, the Taiwan Stock Exchange is in talks with the Tokyo Stock Exchange about cross-listing ETFs in Japan. However, the prospects of anything materialising are uncertain and nothing is likely to happen this year, with a Taiwan exchange official saying that they were concerned about ensuring sufficient demand for the product.

Any cross-listing would be part of long-running efforts to boost international investor interest in Taiwan. The island has a reasonably large equity market, which ranks seventh in the Asia-Pacific region and is larger than Singapore’s, according to World Federation of Exchanges data. But despite its advanced economy, the country is classed as an emerging market by FTSE and MSCI because of access impediments such as an underdeveloped local currency market and restrictions on stock borrowing. Thanks in part to those very issues, interest from foreign investors remains surprisingly limited.

In an effort to widen its offering – current listings are dominated by local tech firms – the exchange has been making efforts to persuade foreign firms to list depository receipts. Meanwhile, last year saw the first Taiwan-Hong Kong ETF cross-listings. The Polaris Taiwan Top 50 tracker was listed in Hong Kong, while a Polaris-run feeder for the WISE CSI 300 ETF – which tracks mainland Chinese A shares – was launched in Taiwan. There’s also talk of listing an ETF on the Chinese mainland market in Shanghai.

Thailand is also trying to boost its local fund industry, according to Dow Jones. The Stock Exchange of Thailand will grant THB80 million (US$2.5 million) to four new ETFs to be launched this year. These follow three existing products launched between 2007 and 2009 that track the 30 and 50 largest stocks on the market and the energy sector. Details of the four new proposed funds were not provided.

Asian Dividend Trackers On The Way

In other market developments, growing interest in listed dividend futures in Asia could ultimately lead to the launch of ETFs based on them, if experience elsewhere is any guide. Dividend futures are a way of betting on or hedging against dividend payouts by companies in an index, with the value of the contract at expiry linked to the total dividends paid out by index members in the past year.

Dividend derivatives have been actively traded over the counter in Europe for at least a decade, while exchange-traded dividend futures started in 2008 on Eurex with the launch of a contract based on Euro Stoxx 50 companies’ payouts. Other European markets followed suit and the first ETF based on the EuroStoxx 50 Dividend Points Futures Index was launched by Lyxor in May.

Now interest in dividend futures is growing in Asia. In June, Singapore issued the region’s first product, based on Japan’s Nikkei 225 index, the OTC market for which has been growing for about five years. In doing so it beat the Tokyo exchange, which had been lining up a launch for several months; its range of three products, based on the Nikkei, Topix and Topix Core 30 indices, made it to market at the end of July. Meanwhile, the Hong Kong exchange is considering launching its own products based on the new Hang Seng Dividend Point Index. While it’s early days, interest in the Singapore futures seems encouraging but Tokyo trading looks very light so far.

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