China and Japan expand ETF connectivity scheme
China’s two main stock exchanges in Shanghai and Shenzhen and the Japan Exchange have added new exchange traded funds and vowed to expand the product types included in their joint ETF Connectivity scheme, which has struggled to gain momentum after it was launched 18 months ago.
The Japan Exchange Group on Tuesday gave the green light to two new ETFs managed by Daiwa Asset Management that are set to be listed on the Tokyo Stock Exchange on April 8, according to an official announcement.
The approval of the iFreeETF China STAR50 and iFreeETF China GBA100 form part of efforts to broaden the Japan-China ETF Connectivity scheme, the Japan exchange group said.
Debuted in June 2019, the scheme allowed four Chinese and four Japanese asset managers to list new ETFs that invest and can be traded in each other’s market.
Speaking at the second China-Japan Capital Market Forum held online on Monday, representatives from the exchanges said they had renewed terms of the cross-border ETF programme.
During the forum, representatives said they would explore further co-operation in the real estate investment trust, sustainable finance and technology industries.
The announcement also comes after Yi Gang, governor of the People’s Bank of China, met Hideo Tarumi, Japan’s ambassador in China, earlier this month to discuss further financial co-operation between the two markets.
It is not yet clear whether there will be additional products added to the link-up beyond the two Daiwa ETFs.
Under the original arrangement, one Japanese and one Chinese asset manager would form a partnership that results in a local ETF feeding into the other’s ETF in the cross-border market.
The two new ETFs appear to feed into Chinese ETFs tracking the STAR50 Index and GBA100 Index.
Beijing-based China Asset Management Company, the country’s largest ETF issuer that has existing ETFs covering the two indices, was thought to be a likely partner for Daiwa AM. However, a source close to ChinaAMC believed other issuers are in pair with Daiwa for the two new feeder ETFs.
Another issuer that has a similar product offering is ICBC Credit Suisse Asset Management, but the Sino-foreign joint venture has a much smaller market share.
The STAR50 Index tracks the largest 50 listed companies on China’s Nasdaq-style new board with heavy exposure to emerging technology and biotechnology firms.
The GBA100 Index includes China’s most profitable groups headquartered in the Guangdong-Hong Kong Greater Bay Area region. About 35 per cent of its constituents comprise Hong Kong-listed companies such as Tencent, insurer PingAn Group and Hong Kong Stock Exchanges and Clearing.
China’s Shenzhen bourse, where the GBA ETF is listed, issued a brief statement disclosing that an ETF would debut in Shenzhen, which would feed into a Japanese ETF tracking the Nikkei 225 Index.
Of the four existing Japan-focused ETFs only one, run by ChinaAMC, has performed well. Assets in the ChinaAMC Nomura Nikkei 225 ETF rose by 87 per cent from Rmb47m ($7.3m) as of September 2019 to Rmb88m at the end of 2020.
The remaining three ETFs that invest in Japan under the ETF Connectivity scheme have proved disappointing.
Assets in HuaAn Fund Management’s HuaAn Maxis Nikkei 225 ETF increased marginally from Rmb52bn to Rmb57bn, while the size of China Southern Asset Management’s China Southern AM One Topix ETF grew from Rmb56m to Rmb60m thanks to index performance.
E Fund Management’s E Fund Nikko Nikkei 225 ETF by Nikko Asset Management suffered the most during the period, with assets falling from Rmb102m to only Rmb66m as of year-end 2020.
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