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Source, a London-based provider of exchange-traded funds (ETFs), and CSOP Asset Management, a Hong Kong-based investment management firm, have teamed up to launch Europe’s very first ETF to offer direct physical exposure to the China A-shares market.
Listed on the London Stock Exchange (LSE) and available to both retail and institutional investors, the CSOP Source FTSE China A50 UCITS ETF (CHNP) has debuted with more than $230 million in assets after strong pre-IPO demand from investors.
The A-shares market is widely viewed as the most authentic Chinese equity market. A-shares are shares of mainland Chinese companies, traded on mainland Chinese exchanges and denominated in Chinese renminbi (RMB). This market represents over 4% of the global equity market but has been difficult to access, particularly for smaller investors.
The ETF invests directly in A-shares under the Renminbi Qualified Foreign Institutional Investor (RQFII) quota scheme. Investors with RQFII status may, within their allocated quota, buy and sell A-shares freely. Hong Kong-based CSOP is currently the largest RQFII manager of A-shares globally and has been granted quota specifically for the new London-listed ETF.
“We are delighted to be partnering with Source to create a European ETF,” says Chen Ding, CEO of CSOP. “There has been high demand for our Hong Kong-listed ETF and we expect similarly strong interest from Europe.” CSOP’s existing CSOP FTSE China A50 ETF (2822 HK), listed in Hong Kong, is the largest and most actively traded RQFII ETF, with assets of RMB 21 billion.
The ETF aims to track the performance of the FTSE China A50 Index, which comprises the top 50 companies listed on the Shanghai and Shenzhen Stock Exchanges. The index is a recognised benchmark for A-shares and has been calculated by FTSE since 2003. Among the largest constituents of the index are Ping An Insurance, China Vanke and Gree Electric Appliances.
“The FTSE China A50 index is an ideal choice for an ETF benchmark,” said Mark Makepeace, CEO of FTSE. “It offers a good balance between market representation and investability and has already attracted US$ 9.5 billion in A shares assets.”
“This ETF represents a milestone for European investors,” added Ted Hood, CEO of Source. “It allows all investors – not just large institutions with their own investment quotas – to invest directly in one of the world’s most important equity markets. CSOP’s knowledge of the Chinese market and their experience managing RFQII ETFs allow us to offer an efficient, well-structured product.”
Xavier Rolet, Chief Executive of London Stock Exchange Group, commented: “We are delighted to mark the first ETF listing of 2014 with such a ground breaking product. London Stock Exchange’s leading position as a listing venue for exchange-traded products combined with FTSE’s strong track record of providing China-linked indices, positions the Group well to work with some of the largest asset management firms and ETF issuers in the world. The listing of a new China A Shares ETF will allow European investors to have direct exposure to one of the fastest growing economies and reinforces London’s position as a centre for international finance.”
The ETF is denominated in RMB and trades on the LSE in USD (CHNA LN) and GBP (CHNP LN). Investors will be exposed to fluctuations in the exchange rate between RMB and the currency in which they are trading. It has a total expense ratio of up to 1.11%.
The launch of the ETF represents something of a coup for Source and its partner CSOP, who have pipped rival ETF manager Deutsche Asset & Wealth Management (DeAWM) and its partner, Harvest Global Investments, to get Europe’s first physically replicated China A-share ETF to market. DeAWM’s product, the db X-trackers Harvest CSI300 Index UCITS ETF (DR) (ASHR), unveiled on January 6th, isn’t due to list until January 16th.