Shanghai and South Korea stock exchanges agree to list ETFs
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The Shanghai and South Korean stock exchanges have agreed to establish a cross-border link between exchange-traded funds that will allow ETF providers to sell their products directly to investors in the other market.
Cai Jianchun, chief executive of the Shanghai Stock Exchange, and Sohn Byungdoo, chairman and chief executive of the Korea Stock Exchange, signed a memorandum of understanding via a video link last week.
“The demand for overseas investment has resulted in deep cooperation between the financial market industries of China and South Korea,” said the Shanghai Stock Exchange mentionned in the ad.
Sohn of KRX said future cooperation in areas such as cross-listing ETFs and developing joint indices would provide investors with better access to the financial markets of the two countries.
“I am convinced that this memorandum of understanding will contribute to the culmination of a long-standing cooperative relationship between Korea and China,” he said. mentionned in a KRX ad.
The ETF industries in South Korea and China have grown rapidly in recent years.
In South Korea, ETF assets have grown more than 40% in the past 12 months, from around $ 37 billion to nearly $ 53 billion, according to Morningstar data.
Meanwhile, in China, ETF assets grew 34.7%, from $ 93.52 billion at the end of March 2020 to $ 126.01 billion at the end of the first quarter of this year.
While the plans appear to lack details at this point, the Shanghai Stock Exchange added that the two sides will explore the joint development of related indices, facilitating cross-border investments and bond market-related cooperation.
He added that the two markets would learn lessons from other ETF trading links already established between other markets and try to take advantage of the growing cross-border trade between China and South Korea.
In 2019, China installation an ETF connectivity program with Japan, after which four Chinese and four Japanese asset managers have listed ETFs that invest and trade in each other’s markets. The eight ETFs that launched the program attracted RMB 1.5 billion ($ 218 million) in assets during the initial fundraising period.
Last year, regulators in mainland China and Hong Kong established a cross-listed master-feeder framework with two pairs of ETFs approved for sale in the respective markets. As part of this program, four ETF issuers – two in Hong Kong and two in China – formed two separate individual links for the launch of the new link.
However, both programs appear to have had only moderate success so far.
The eight ETFs sold under the China-Japan ETF connectivity program had attracted just $ 147.8 million at the end of March, compared to $ 111.26 million at the end of June of the year. last.
Four of the top eight cross-border ETFs between China and Japan suffered from significant outflows, with China Asset Management’s ChinaAMC Nomura Jap-Econ 225 ETF having suffered buybacks of $ 37 million between June 2020 and the end of March this year.
Although the China-Japan ETF system struggled to gain momentum, the Shanghai and Shenzhen stock exchanges and the Japan stock exchange approved new ETFs in January.
However, four months later, only three of the second batch of four ETFs have actually been listed, and it appears that an ETF from ICBC Credit Suisse Asset Management has yet to be rolled out to the Tokyo Stock Exchange.
The Hong Kong-China ETF master-feeder program had reasonable trading volumes, but perhaps in a sign that the program’s impetus was a top-down initiative by regulators, no new manager had Express Interest in joining the program when contacted by Ignites Asia late last year.
The poor performance of existing programs raises questions about the future success of the South Korea-China plans.
Jackie Choy, ETF research director for Asia at Morningstar, said if South Korea’s new link to China were to be a master-feeder structure, demand could be hampered by “layers of complexity.” , such as multiple fees, and the fact that two issuers in two markets must be paired for any launch.
The appetite of South Korean investors is also uncertain. ETF investors in South Korea can already gain access to Chinese assets through local ETFs or those listed in other markets using a quota of qualified foreign institutional investors or the Hong Kong-China Stock Connect, a. -he adds.
Out of more than 450 ETFs listed on the Korean stock exchange, 15 invest in the Chinese onshore market.
Meanwhile, Chinese investors still largely have a national preference and are unfamiliar with a market like Korea, so ETF issuers in China might not be so keen on deploying feeders that are investing in the Korean market, according to Choy.
* Ignites Asia is a news service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at ignitesasia.com.