ETF provider EIP eyes debut in Shenzhen

The head of Hong Kong-based Enhanced Investment Products (EIP) says the firm is in talks with the Shenzhen Stock Exchange about listing its Chimerica ETF, just five months after launching it in Hong Kong.

Tobias Bland, EIP chief executive, said there was no timeline for the listing as yet since discussions had only just started.

“If we can sell it to anybody [in China], why can’t we list it in China,” Bland pondered, referring to the Chimerica exchange-traded fund, which comprises 26 of the largest China-related companies listed in the US.

Bland is forecasting that onshore China-based investors will finally be allowed to invest in Hong Kong-listed ETFs next year.

He thinking is that ETFs will be included among securities eligible for trading under the Shanghai-Hong Kong Stock Connect scheme and its pending Shenzhen equivalent, which Bland expects to be launched in the first quarter of 2016.

CLSA acquired a 49% stake in EIP’s Xie Shares ETF brand last September, as reported. At that time, the plan was to launch a range of smart-beta ETFs based on thematic research produced by CLSA by the end of 2014.

Since the acquisition, however, EIP has only had one ETF approved – namely Chimerica, which became Hong Kong’s first ETF tracking US-listed Chinese firms when it was launched this April.

At the time of launch it had HK$201.4 million ($26 million) in AUM, but that has since declined to HK$162.1 million amid weaker market conditions. The ETF’s price climbed 12% after listing to peak in May and has since declined by around 33%.

That was less than Hong Kong’s most-traded ETFs which track the A50 and CSI300 indices and have declined by about 38% and 42%, respectively, from peaks earlier this year. The Hang Seng Index tracking Tracker Fund has declined by around 23%.

But Bland criticised what he sees as a lack of transparency in the application process for listing ETFs in Hong Kong, which he argued made it difficult to get products to market in timely fashion.

“There has been a lot of head scratching [by the industry] about how to get this right,” he said. “At the moment it’s definitely wrong, but there is an urgency missing in Hong Kong [to address the situation].”

Regulatory approval for ETFs takes about two months in mainland China, less than half the 4.4 months average it has taken in Hong Kong over the past few years, according to figures from PwC.

Maria Tsui, partner at PwC, agreed some managers had experienced a long approvals process, but noted it depended on various factors including complexity of products.

Hong Kong’s ETF AUM is dominated by plain vanilla funds, which track the FTSE A50, CSI 300 and Hang Seng Index. ETFs approved by Hong Kong Securities and Futures Commission (SFC) this year track ChiNext; CSI Small Cap 500 A; FTSE China N; FTSE Value-Stocks China A; HSI Futures; MSCI China A; MSCI China; USA Internet Top 50; and the S&P500.

But once each new listing in Hong Kong has received regulatory approval, it must go through an approvals process by the exchange, which is adding to the time lag.

This June Julia Leung, executive director of investment products at Hong Kong’s SFC, announced it had formed a working group with the asset management industry to streamline fund authorisation, including ETFs.

The industry is hoping new products under existing fund umbrellas authorised by the SFC will take no more than two months – and potentially one – for approval. That would put Hong Kong on par with Korea and Taiwan – and ahead of Japan and Singapore.

Approvals take about two months in Korea and less than one for domestic issuers in Taiwan (and up to two months for overseas issuers). In Japan, they take about six months, and 3-6 months in Singapore.

Figures from data provider Markit indicate that Hong Kong’s share of Asia’s ETF market by AUM declined to 16.2% this month, having hit 20.1% in April amid inflows into ETFs tracking China indices.