The CSI China Dragon Internet ETF, listed today on the Hong Kong bourse, invests using a full replication of its benchmark, the CSI Global China Internet Index, according to the firm.
In the index, there are a total of 30 stock holdings. They are companies listed globally that operate an internet-related technology business and derive at least 50% of their revenue from China domestically, according to the index provider China Securities Index (CSI).
The index is weighted based on the floating market capitalisation of the constituents with a cap on each stock. At the end of May, they had an aggregate market cap of RMB 2.04trn ($314.8bn) in the index.
Choosing a thematic strategy for Chinese equities rather than a broader index is an attempt to differentiate from existing products for sale in the SAR, according to Carmen Cheung, head of ETFs at the firm.
“There are quite a number of ETFs listed in Hong Kong tracking the broad based, large-cap A-shares indices, such as the CSI 300 and MSCI China A Index. Therefore, it would be more meaningful for us to issue a product that gives a different exposure,” she explained.
Ten largest constituents and weighting
Source: CSI. As of June 8.
She added that the ETF is different from other tech-focused passive products in the market, which mainly invest only in US and Hong Kong stocks and A-shares that is accessible via the Stock Connect scheme.
China’s tech story is more attractive to investors, she believes. “While the growth of the US tech giants is approaching the peak, we believe their counterparts in China stand to follow them with upside in the stock price,” she said.
ETF Connect prep
The new product is a part of the preparation work for the impending ETF Connect programme, according to Cheung.
The Hong Kong-mainland ETF Connect, a proposed cross-border trading of ETFs, is expected to be operational at the end of 2018 or in early 2019, according to industry insiders.
She admitted that it is not easy for ETF issuers to prepare for the Connect programme because the regulator has not yet announced any guidelines on eligible products.
However, the firm has taken reference from some rules used in the current fund passporting programme, the Mutual Recognition of Funds scheme. For example, the maximum cap of A-shares investment placed on each fund.
Samsung AM currently manages a crude oil futures ETF and four leveraged and inverse products. They are: Hang Seng China Enterprises Index (HSCEI) Daily (-1x) Inverse Product and HSCEI Daily (2x) Leveraged Product, Hang Seng Index (HSI) Daily (-1x) Inverse Product and HSI Daily (2x) Leveraged Product.
In July last year, it delisted six exchange-traded products, including the KOSPI 200 Daily and TOPIX Daily leveraged and inverse products one year after their listing. Two other ETFs that were delisted tracked the Hang Seng Futures Index.
The CSI China Dragon Internet ETF is the only new product since the firm’s delistings, which began last year.
More thematic products targeting domestic investors in China are in the pipeline, but no further information can be disclosed at this stage, according to the firm.