HONG KONG Dec 4 Global fund managers are
reaching outside Asia to tap growing demand for Chinese assets
after authorities relaxed investment restrictions to promote the
international use of the yuan.
Chinese asset manager Harvest Global Investments recently
partnered with Deutsche Asset & Wealth Management to list an
exchange-traded fund (ETF) in the United States under a growing
yuan-denominated investment scheme offering U.S. investors
direct access to China's A-share market for the first time.
Offshore ETFs focused on the A-share market are among the
few options for foreigners to access mainland markets and they
have become popular in recent months due to anaemic growth
prospects in the West and a recovering Chinese economy.
Total assets under management for the offshore ETFs have
swelled to about $19 billion in a few years, with the new U.S.
listed ETF attracting more than $100 million in initial
investments, the biggest launch among all equity ETFs in the
U.S. ETF market this year, Deutsche Bank said.
"We are very satisfied," Marco Montanari, head of Passive
Asset Management Asia Pacific of Deutsche Asset & Wealth
Management, told Reuters.
The U.S. ETF has a way to go before it catches up with the
top 3 A-share ETFs listed in Hong Kong, namely the ishares FTSE
China A50, CSOP FTSE China A50 RQFII and
ChinaAMC CSI300 RQFII, which take the lion's share in
the ETF landscape, managing more than $13 billion in assets.
ETFs offered under a yuan-denominated investment scheme
launched in 2011 - called the Renminbi Qualified Foreign
Institutional Investor (RQFII) - is preferred more by investors
than ETFs launched under its older cousin - the Qualified
Foreign Institutional Investor (QFII) - started in 2002.
That is because the RQFII ETFs invest in all constituent
stocks with the same weight as those in the benchmark, compared
with the QFII ETFs, which use derivatives to gain exposure and
thus have higher counterparty risk and tracking error.
"U.S. investors have historically shown a strong interest in
physical ETFs and a majority of ETFs in the U.S. are physical
ones. It offers a higher level of comfort," said Deutsche's
Montanari, who is speaking with regulators to list its first
RQFII ETF in Europe.
The growth in ETF products targeting investors outside Asia
has also gained traction because of regulatory prodding, with
U.S.-based fund manager Krane reportedly in talks with Chinese
Bosera to list an RQFII ETF in the United States.
Chinese funds and brokerages were granted quotas in the
initial RQFII scheme introduced in 2011, but the State
Administration of Foreign Exchange (SAFE) later invited foreign
asset managers by allowing institutions based in Hong Kong to
take part and expanding the quota to 270 billion yuan ($44.32
billion) at the end of 2012.
Regulators also permitted funds raised in offshore markets
to be included in the scheme rather than restrict them to those
raised in Hong Kong, paving the way for RQFII ETF listings.
"RQFII ETFs are quite active recently as foreign investors
are optimistic on China's economic outlook and determination to
conduct reforms," said Ben Kwong, chief operating officer at
securities firm KGI Asia.
An ambitious reform blueprint unveiled last month has
triggered a rally in the offshore Chinese markets and prompted
foreign asset managers to look favorably at China with some
funds offering yuan share classes to attract more investors.
European money manager Amundi Asset Management and DBS Bank
led the way with renminbi-denominated units in their
funds, with JPMorgan Asset Management and Value Partners
reportedly also planning similar moves.
"One of the key challenges for us is to promote our brand
among local investors. (There is) no better way to promote the
brand than with a robust product," said Zhong Xiaofeng, Chief
Executive Officer of Amundi North Asia.