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CSOP debuts another China index tracker

Despite delistings of A-share ETFs by various firms, CSOP believes that the product is differentiated in Hong Kong due to the focus on small and mid-caps.
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CSOP Asset Management in Hong Kong will be listing the CSOP CSI 500 ETF tomorrow in the SAR, according to filings from the Hong Kong Exchange (HKEX).

When listed, it will be the first local ETF tracking the CSI 500 Index, HKEX records show.

The move follows after the firm decided to delist its China CSI 300 Smart ETF in November, which failed to attract satisfactory assets.

Several other China A-share focused ETFs have also been delisted in the past two-to-three years, which include the Harvest MSCI China A 50 Index ETF, the E Fund CES China 120 Index ETF, China Asset Management’s CES China A80 Index ETF and the CSOP China A80 ETF.

Most of them failed to gather assets, with industry sources saying they often lacked diversification as they tracked broad-based China indices that invest in the largest companies listed in the mainland.

A Hong Kong-based spokesman at CSOP AM acknowledged that there is a lack of differentiation in the A-share ETF market in the SAR.

“The reason why we delisted the CSI 300 Smart ETF is that there are already many CSI 300 ETFs in the market with slight differentiation. Besides, there is already a dominating CSI 300 ETF from our competitor in the market,” he said.

A number of passive products track broad-based China A-share indices. For example, there are six following the CSI 300 Index, while four products track the FTSE China A50 Index, according to data from the exchange.

However, only a few of them have attracted sizable assets:

The CSI 500 Index

CSOP officials believe its new product is differentiated from what is already available in Hong Kong’s ETF market.

The spokesman explained that the CSI 300 Index constituents are large cap companies — the 300 largest stocks listed in the mainland.

By comparison, the CSI 500 Index consists of the largest remaining 500 A-share stocks after excluding both the CSI 300 Index constituents and the largest 300 stocks. These remaining companies are small-to-mid-caps.

“There is no overlap with the current China A-shares ETFs that are already available in Hong Kong,” he said.

He added that the CSI 500 reflects the new economy of China, with new infrastructure-related sectors, including 5G, artificial intelligence, big data and semiconductors, accounting for 50% of the index.

The sector weightings between the CSI 300 and CSI 500 have huge differences, especially in the IT, financials and industrial sectors, according to data from CSI.

Sector weightings (%)

The spokesman noted that in the mainland, one of the largest ETFs is also tracking the index. According to data from Morningstar Direct, China Southern Asset Management’s CSI 500 ETF is the second-largest passive product and 42nd largest public fund in China, including money market funds. As of the end of 2019, it had RMB 44.54bn ($6.35bn) in assets.

Other asset managers operating in Hong Kong, including Mirae Asset Global Investments, Premia Partners, Samsung Asset Management and Ping An of China Asset Management, have also made efforts to diversify their China-focused ETF offerings by launching specialised or thematic products.

However, the timing of CSOP’s product launch comes when global markets have been rattled as investors panic over the Covid-19 global outbreak.

“We have been planning to issue the product since the end of 2019,” the spokesman said. “The launch just coincided the market slump.

“However, after a heavy sell-off since the beginning of 2020, we think that the historical low level of the CSI 500 Index may indicate good timing for entry.”

The CSI 500 Index versus the CSI 300 Index

Source: CSI website. Note: Data for the CSI 500 Index is not available on FE Fundinfo.

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