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Korea Leads Spike In Asian ETF Trading

Written by Cris Sholto Heaton

 –  August 18, 2011 19:11

The summer lull has set in for Asian exchange-traded fund launches, but markets have been anything but quiet. Regional ETF trading has soared amid the global panic, with activity last week up 80 percent on the preceding week, according to Deutsche Bank data. The year-on-year increase was an even more startling at 200 percent.

Unsurprisingly, the greatest increase in turnover came from leveraged and short-based equity products. Leveraged equity ETF turnover increased 145 percent week-on-week and short equity ETF turnover increased 215 percent week-on-week.

Country flows were largely a reflection of the regions in which ETFs of this type are readily available. Korea topped the tables in terms of turnover last week, with an enormous US$6.4 billion traded, up 108 percent on the previous week alone.

Korea has seen a huge increase in the number of ETFs listed and traded, so year-on-year figures may be misleading, but turnover at the beginning of June, which may be a reasonable pre-crisis comparison, was just US$1.1 billion. Hence the increase in activity far outstripped Hong Kong and Tokyo, which both more than doubled to US$2.9 billion and US$1 billion, respectively.

The vast majority of the increase took place in two Kospi-based ETFs from Samsung, one leveraged and one inverse. Conventional unleveraged long Kospi trackers from both Samsung and Mirae saw substantial net outflows, presumably reflecting investors taking either an extremely bullish or an extremely bearish position and ceding the middle ground.

Other notable movements took place in Taiwan, which, like Korea, is a volatile market which is highly sensitive to the global economy. Unlike Korea, Taiwan has no leveraged or inverse ETFs; instead, a 60 percent week-on-week increase in turnover appears to have simply reflected investors pulling money out of trackers, with the main funds from Polaris and Fubon losing US$400 million each.

Outside of equities, gold products were as active in Asia as anywhere, with gold ETF turnover nearly doubling week-on-week. India’s Reliance seems to have done exceptionally well, pulling almost US$80 million into its gold ETF, making it the only commodity ETF in the top 20 gainers by assets under management.

New launches in Korea and China

Clearly, this hasn’t been the best time to be launching new products and while no scheduled launches seem to have been officially pulled, it wouldn’t be surprising if some have been quietly delayed. Among those that made it to market was a thematic ETF from Samsung, focusing on solar power.

The Kodex Solar Energy ETF is based on an index from local provider FnGuide and currently holds 11 stocks, most of which are the chemicals divisions of the same conglomerates that dominate virtually every Korean ETF. The new ETF is physically replicated and has a total expense ratio of 0.45 percent.

In China, we saw a new launch on the Shenzhen Stock Exchange, which focuses on stocks listed on the small and medium enterprise board. The Guangfa SZSE Small and Mid Cap Enterprises 300 Price Index ETF has been in the pending list for some time, having been approved early in 2011, and the delay suggests that it may have had some trouble raising funds. Its initial assets under management of around RMB800 million (US$120 million) are significantly less than peers such as Lion and Guotai managed to raise more quickly with ETFs approved around the same time. Further details of the new fund were not available in English at time of writing.

The Shenzhen SME board is distinct from the ChiNext board, which is designed for early stage companies, mostly in the technology sector. ChiNext has received greater global coverage since launching in 2009, mostly on account of the spectacular valuations and dubious prospects of many of its listed firms. Now it looks set to get an ETF of its own, with E Fund Management reportedly approved to launch one. Exactly what an ETF will do to improve a roulette-like market that trades on an average price/earnings ratio of 50 remains to be seen.

 



 



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