Asset owners snap up HKD counters of RQFII funds

Global institutional investors piled into RQFII exchange-traded funds late last week after two Chinese fund houses added long-awaited Hong Kong trading counters to their offerings.

CSOP and E Fund Management introduced the counter to their A50 and CSI 100 renminbi-denominated qualified foreign institutional investor ETFs last Thursday and Friday, respectively.

Previously these physically backed A-share ETFs were only quoted and traded in RMB. Now the dual-counter model allows investors to buy and sell RQFII ETFs using either currency.

This spurred inflows from global institutional investors, including overseas pension funds, sovereign funds and hedge funds, which until now have been investing in synthetic A-share ETFs traded in HK dollars.

Harvest launched the first HK dollar trading counter for its MSCI A-share Index ETF on October 12, and was followed by China Asset Management with its CSI 300 Index ETF two weeks later. Now the last two RQFII ETF issuers have caught up.

Eugene Lee, global head of sales and marketing at E Fund Management (HK), confirms that the HK dollar counter had been eagerly anticipated by international investors.

He says the firm received orders from sovereign funds in South East Asia, pension funds and institutions from Taiwan and Korea, some of which already invest in the synthetic iShares FTSE A50 China Index ETF.

At the end of August E fund received an additional Rmb3 billion in RQFII quota, and Lee says almost 80% of this has been used up, driven by demand from institutional investors awaiting this HK dollar tranche.

Chen Ding, chief executive of CSOP Asset Management, says it is now applying for additional RQFII quota to meet expected demand for the HK dollar trading counter from institutional investors.

CSOP's A50 ETF currently has an RQFII quota of Rmb10 billion, all of which has been used up.

The advent of RQFII ETFs is seen a huge step in the internationalisation of the renminbi, which is not fully convertible and as such is not widely used as trading currency by foreign investors.

Both CSOP and E Fund accept that some institutional investors don’t feel comfortable holding renminbi and investing in RMB-denominated assets from a risk-control perspective. They prefer using the Hong Kong dollar, which is still pegged to the universal US dollar.

“RMB is a new trading currency to some foreign investors and not all of them have RMB in their accounts, and their mandate and risk control system might not allow them to invest through RMB,” says Chen.

Already data indicates that the HK dollar counter has been well-received by investors. As of last Friday, total trading volume in the CSOP A50 ETF was 56 million units, 68% of which came from the newly added counter. 

Meanwhile, E Fund’s CSI 100 ETF saw record trading volume of one million units, 51% of which came from the new counter.