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Issuers Forge New Frontiers In Asia

Written by Cris Sholto Heaton

 –  November 17, 2011

An unusually busy month in Asian ETFs saw 19 new products come to market across seven countries. These include two notable launches from db x-trackers: the first single-country ETFs covering Pakistan and Bangladesh, both of which will be listed in Singapore.

While many investors will see these two products are similar, there are some differences. Bangladesh is very much a frontier market, with relatively limited foreign involvement.

The MSCI Bangladesh index on which the db ETF is based only dates back to late 2009, but already shows a familiar pattern for a market of this type. It underwent a spectacular bubble and bust in 2010 and early 2011, and is currently down 45 percent from the peak, with no sign it has yet hit bottom.

This is a 67-stock benchmark, but in traditional emerging market fashion it’s pretty unbalanced. Banks are the major sector, accounting for 55 percent of the basket and seven of the top 10 holdings.

Pakistan is a more established market and while international interest isn’t high, more adventurous emerging market funds have long been invested here. Indeed, prior to late 2008, it was classified as an emerging market rather than a frontier market by MSCI.

This changed when regulators attempted to deal with a market collapse in 2008—which ultimately led to an 80 percent peak to trough fall —by introducing the infamous “floor rule”, which essentially said that stocks could not trade below their current price. Once introduced in August of 2008, this paralysed the market for several months until it was removed in December of that year.

As a result, Pakistan was downgraded to a frontier market. That classification is probably more realistic than its previous status, because it is an extremely top-heavy market with a handful of dominant stocks. The MSCI Pakistan tracked by the ETF is a 25-stock index, dominated by three sectors: energy (38 percent), banks (28 percent) and raw materials (24 percent). Three stocks, one in each of those sectors, account for almost half of the basket.

Like most db x-trackers products, both are swap-based ETFs that capitalise dividends. However, reflecting the higher costs of frontier markets, the total expense ratios are higher than usual at 0.85 percent.

Two other more conventional ETFs also joined the issuer’s range in Singapore: one an MSCI Singapore tracker and the other an MSCI Asia Pacific ex Japan tracker. The latter index differs from the more commonly used Asia ex Japan benchmark by including Australia, which is the largest weighting with around a quarter of the basket. Both products have the usual db x-trackers TER of 0.5 percent.

Domestic gold ETFs come to Thailand

Thailand saw three new launches, all of which are based on physical gold. These are the first ETFs to hold bullion within the country: Krung Thai listed a gold tracker at the beginning of August, but this operates as a feeder into the Hong Kong listing of the SPDR Gold Trust.

The first of the three was the ThaiDex Gold ETF from One Asset Management, which also runs large cap and high dividend ETFs for Thai equities, making it the leading issuer in this small ETF market. The ThaiDex Gold will invest in 99.5 percent purity gold bullion from London Bullion Market Association-certified producers. The TER is 1.21 percent.

This was quickly followed by the K-Gold ETF, from Kasikorn Asset Management, and the Bualuang CHAY Gold ETF, both of which will invest in 96.5 percent purity gold bullion, a common standard in the local gold trading industry. The K-Gold product is an ETF version of an open-end fund launched by Kasikorn in April, while the Bualuang ETF is a new launch from Bangkok Bank. The TERs are 1.59 percent and 1.45 percent, respectively.

Lyxor considers leaving Hong Kong

In Hong Kong, China Merchants Securities—part of mainland firm China Merchants Bank—brought its first international ETF to market. The CMS CSI Overseas Mainland Enterprises fund will track an index of mainland companies listed abroad, mostly in Hong Kong and the US.

No other ETF tracks this index at present, but given the heavy weighting in Hong Kong-listed stocks (85 percent at present) and the familiar state-owned large caps, it seems unlikely that it will perform very differently to better-known indices such as the MSCI China. The TER is 0.66 percent.

 



 



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