Cris Sholto Heaton offers his regular review of developments in the Asian ETF markets.

Four new launches

There were four new ETFs launched in Asian markets in the last couple of weeks. Two new Japanese listings came from Nomura Asset Management’s Next Funds range and both were based on US indices. One is a Dow Jones Industrial Average tracker, the second for that benchmark to be listed in Japan, while the other is the country’s first Nasdaq 100 ETF.

Both are physically replicated products and have a total expense ratio of 0.45%. Unusually, these two funds are listed on the Osaka stock exchange, which may have been driven by an existing cooperation agreement between Nasdaq OMX, owner of the Nasdaq-100 benchmark, and the OSE. Osaka is the second largest of Japan’s five exchanges and focuses more on derivatives than cash equities, in which the Tokyo exchange dominates. At present Osaka has 13 exchange-traded products listed, compared with 93 in Tokyo.

Elsewhere, db x-trackers listed two commodity ETFs in Singapore. The db x-trackers Commodity Booster Light Energy USD Benchmark and the Commodity Booster Dow Jones UBS Commodity USD Index funds both use an “optimum yield” strategy. This means that they vary which futures contracts the index rolls into as the current contracts expire instead of simply rolling into the next front-month contract. This is intended to minimise the loss from rolling futures contracts forwards when the market curve is in contango or maximise the roll yield gain when the market is in backwardation.

Both are diversified commodity benchmarks: the Light Energy index is around 36% energy, 17% base metals, 8% precious metals, 28% agriculture and 11% livestock, while the Dow Jones UBS index is 32% agriculture, 31% energy, 18% base metals, 13% precious metals and 7% livestock. The TER for both is 0.95% and, as usual with x-trackers ETFs, these are swap-based products.

Benchmark upbeat on Indian gold ETFs

We’ve mentioned before in this roundup how Indian ETF providers are positioning themselves for an expected boom in gold ETF investment, with some nine gold trackers now available on India’s exchanges. At present, these are definitely a minority investment: most Indian buyers continue to put their money in physical gold and jewellery, with just 12 tonnes of metal under management in ETFs at present.

But the country’s total annual consumption of around 700 tonnes means there is enormous potential if investors can be persuaded to change their habits. And Benchmark Asset Management, India’s leading ETF provider and the issuer of the country’s largest gold ETF, is certainly optimistic that it can do that. The firm thinks total gold ETF assets could reach 100-200 tonnes within three years, according to an interview with Bloomberg – a 17-fold increase at the upper end of that range.

However, one thing that might hold back the development of gold and commodity products is infighting between India’s regulators. India’s banks recently asked the Reserve Bank of India for permission to invest in gold ETFs. But the Forward Markets Commission, the country’s commodity derivatives markets regulator, is pushing the RBI to block them from doing so, according to the Business Standard.

The FMC also recently forced the National Stock Exchange to drop plans to start options trading on gold ETFs, even though the Securities and Exchange Board of India – the stock exchange’s regulator – had approved the plan. And it has previously squashed proposals for silver and crude oil ETFs – although Benchmark is again talking of plans to launch a silver ETF at some point.  

Another dark pool makes its debut

In exchange developments, Asia acquired another dark pool when the Deutsche Bank Automated Trading System (DBATS) made its debut in Hong Kong last week. Dark pools are facilities that allow investors to trade off-exchange and have become highly popular in the US and Europe as a way for institutions to find sufficient liquidity to trade large blocks while remaining anonymous and minimising market impact.

Although the industry is less developed in Asia, the number of providers is growing. Nomura’s Chi-X Global launched a Japan dark pool at the beginning of August and also expects to launch in Australia in March after recent regulatory changes there allowed competitors to the Australian Stock Exchange to enter the market. A number of major banks and independent providers such as Tora and Liquidnet already have crossing networks around the region.

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