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China AMC de-lists L&I products

China Asset Management plans to wind up two L&I ETFs linked to Hong Kong's H-share index.

The ChinaAMC Direxion Hang Seng China Enterprises Index Daily (2x) Leveraged Product and the ChinaAMC Direxion Hang Seng China Enterprises Index Daily (-1x) Inverse Product will cease trading on 1 September, according to a statement sent by the firm to the Hong Kong Stock Exchange (SEHK).

China AMC decided that the products’ “relatively small net asset value” meant it was in “the best interests of the investors” to terminate the two leveraged and inverse (L&I) products, which are respectively  HK$40.1m ($5.18m) and HK$15.3m.

The ETFs were launched in March 2017 under the ChinaAMC Leveraged/Inverse Series, a Hong Kong umbrella unit trust, and the firm expects the final termination date to be around 2 November.

The firm was unable to comment in time for publication.

However, the announcement comes just a few days after China AMC  brought a couple of new L&I products to the Hong Kong market. While the firm has jettisoned two vehicles linked to H-shares (China companies listed on SEHK), it appears to be more confident about demand for funds that track A-shares.

Late last month, the firm launched the the ChinaAMC Direxion CSI 300 Index Daily (2x) Leveraged Product and the ChinaAMC Direxion CSI 300 Index Daily (-1x) Inverse Product.

The listings followed the Securities and Futures Commission’s (SFC) decision in May to allow the issue of L&I products that track mainland equity indices.

Leveraged ETFs amplify returns depending on the multiplier (2x, for example) when an index rises. as do inverse ETFs when an index falls. Conversely, if an investor makes a bet in the wrong direction, losses increase.

ETF incentives

L&I products in general were first allowed in Hong Kong in 2016, but the sector remains small, accounting for 3.2% or HK$9.97bn of Hong Kong’s HK$311bn ETF market as of the end of June, according to Hong Kong Exchanges and Clearing data.

Hong Kong’s total ETF assets were up 8.5% last year to reach $35.6bn, but declined 12% this year to $31.2bn in May, according to a report by Boston-based research firm Cerulli Associates.

The market is dominated by products tracking Hong Kong or Greater China indices, but the ability to launch L&I products linked to surging mainland China indices could provide investors with more choices.

The CSI 300 index is up 17.11% so far this year (to 10 August) in US dollar terms, compared with a 6.34% decline by the Hang Seng China Enterprises index, according to FE Fundinfo data.

China’s exchange-traded fund (ETF) AUM, excluding money market ETFs, grew at the fastest rate among Asia (ex Japan) markets during the five months of the year, noted Cerulli, rising 14.7% to $93.6bn.

Meanwhile, the SFC has taken other measures to expand the ETF market in Hong Kong.

In December, it allowed SFC-authorised feeder ETFs to invest in non-SFC authorised overseas master ETFs on a case-by-case basis. Blackrock is the first firm to take advantage of the new regulation and recently launched the iShares MSCI Emerging Markets ETF (HK), which is a Hong Kong-listed feeder ETF that offers exposure to its Ireland-domiciled $3bn iShares MSCI Emerging Markets ETF.

Part of the Mark Allen Group.