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China Insight: QDII Program Overview and Technical Challenges; More Bank Reforms to come? – KapronAsia

Reform in China’s Banking Sector: More to come?

In recent years, Chinese banking sector profits have skyrocketed to new levels, in part due to the Beijing imposed ceiling on the rates banks pay depositors, providing banks with a source of cheap funds, which banks then in turn lend out at much higher rates. Net profits for commercial banks grew 36 percent last year, reaching 1 trillion Renminbi. Chinese banks are enjoying year-on-year rises of more than 30 percent in their first-half net profits. In one example, the Industrial and Commercial Bank of China’s fees and commission income for the year 2011 was close to 100 billion RMB, compared to 72 billion in 2010 and 55 billion in 2009.

The Technical Challenges for QDII Funds in 2012

Since the first QDII quota of US$500 million was allocated to the HuaAn fund in 2006, the quota allocated to security companies and fund companies has maintained steady growth. As of the end of February 2012, US$44.4 billion of investment quota was allocated to fund companies and security companies, compared to US$44.4 billion and US$40.6 billion for 2011 and 2010.

Overview of the QDII Program in China
The QDII (Qualified Domestic Institutional Investor) program was first launched in 2004 initially for insurance companies to invest their foreign exchange funds in the Chinese companies traded in overseas markets, with PingAn insurance company being the first institutional investor to receive a QDII quota of US$8.89 billion. Since then, the program has expanded and now allows institutional investors, including commercial banks, security companies, fund companies, insurance companies and trust funds to raise funds in mainland China and invest in offshore capital markets under the control of China’s foreign exchange regulator.

Disaster Recovery for Chinese Banks
In recent years, since Chinese banks have been working on data consolidation at the national level, the establishment of disaster recovery systems has become one of the key considerations for banks. Today, banks must ensure the stability and security of their national data center in the event of a disaster to ensure uninterrupted business operation through disaster recovery systems.

Source: KapronAsia, 15.05.2012

Filed under: China, Risk Management, Trading Technology, , , , , , , ,

China QFII quota increase April 2012

International asset managers are preparing to apply for the expanded quotas for China’s qualified foreign institutional investor (QFII) scheme and its renminbi-denominated equivalent (RQFII), but the opening will benefit only some.

Last week the China Securities Regulatory Commission (CSRC) said it would increase the total quota for the QFII scheme to $80 billion from $30 billion. At the same time, it released a second batch of RQFII quotas of Rmb50 billion ($7.92 billion), which will be used for A-share exchange-traded funds (ETFs) listed in Hong Kong.

“Even though the additional $50 billion QFII quota and Rmb50 billion under RQFII are not significant amounts for the A-share market, they still have a positive impact,” says Shenzhen-based Da Cheng Fund Management.

Unlike the first batch of RQFII quotas (Rmb20 billion released last December), which were shared by 21 Hong Kong subsidiaries of Chinese fund managers and securities firms, the second batch will only be granted to a few experienced managers.

“We have been preparing for this product for many months and we are confident we will be one of the managers to get the RQFII ETF quota,” says Michelle Chua, regional head of business development at Harvest Global Investors, the international arm of Beijing-based Harvest Fund Management.

The existing A-share ETFs offered in Hong Kong are mostly synthetic (swaps-based) products, but RQFII will broaden the range of physically backed products.

The new ETFs will directly invest in A-shares, explains Chua, so that “there will be no counterparty risk, no p-note [participation note] cost and no foreign exchange difference, as the ETF currency denomination [in renminbi] is the same as [that of] the underlying investments”.

Harvest FMC and Huatai Pinebridge were the two managers that jointly launched the CSI 300 ETF, the first cross-market ETF tracking stocks listed on both the Shanghai and Shenzhen exchanges.

The CSRC will take the RQFII pilot scheme to the next level by expanding its scale, allowing more types of financial institutions to participate and more flexibility in terms of asset allocation.

For the QFII scheme, the previous ceiling was lifted from $10 billion to $30 billion in 2007 after the China-US Strategic Economic Dialogue took place. The increase of $50 billion this time is hailed by local media as “unprecedented”.

Since the QFII scheme commenced in 2003, the CSRC has granted licences to 158 foreign financial institutions from 23 countries and regions. They include 82 asset managers, 11 insurance firms, 23 commercial banks, 13 securities companies and 29 other institutions, such as sovereign wealth funds, pension funds and endowment funds.

The CSRC says 129 out of the 158 qualifiers have obtained a total of $24.5 billion in QFII quotas. As of March 23, 74.5% of the assets in the QFII accounts were invested in the domestic stock market, 13.7% in bonds and 9.6 % in bank deposits. The total holding of QFIIs counts for 1.09% of the market capitalisation of domestic A-shares.

Z-Ben Advisors views the latest changes as “unambiguous signals of China’s intent to attract more offshore investors and a sign that market investments will play a key role in the government’s plan to internationalise the Rmb”.

The Shanghai-based consultancy suggests that, in the short term, asset managers in the QFII application queue should expect accelerated approvals.

Regulators have already upped the pace of approvals since the end of last year. In March, the State Administration of Foreign Exchange granted a record $2.11 billion of quotas to 15 companies, compared with a total quota of $1.87 billion handed out during 2011.

“The QFII programme enhances our experience of monitoring cross-border securities investment and capital flows,” the CSRC says. “The QFIIs, mainly overseas long-term value investors, have diversified the domestic investor structure, upgraded the quality of listed companies and promoted the international recognition of domestic capital markets.”

Source: Asian Investor, 10.04.2012

Filed under: China, News, , , , , , , , , , , , ,

China Insight: QDII updates, Disparated Financial Standards and new Market Reforms – KapronAsia

Overview of the QDII Program in China

The QDII (Qualified Domestic Institutional Investor) program was first launched in 2004 initially for insurance companies to invest their foreign exchange funds in the Chinese companies traded in overseas markets, with PingAn insurance company being the first institutional investor to receive a QDII quota of US$8.89 billion. Since then, the program has expanded and now allows institutional investors, including commercial banks, security companies, fund companies, insurance companies and trust funds to raise funds in mainland China and invest in offshore capital markets under the control of China’s foreign exchange regulator.

China’s Disparate Financial Standards

China’s financial standardization lags behind the relatively rapid development of the financial industry globally and has yet to meet the demands of technology innovation and business expansion. This can slow the pace of technology advancement as competing standards add layers of complexity and make it more difficult to come up with straightforward technology solutions to clients’ problems. The PBOC has realized that financial standardization does and will continue to play a pivotal role in financial informationization and regards standardization work as an important strategic measure to promote China’s financial industry.

Further Reform of China’s Stock Markets in 2012
After being stuck in a bear market for the past few years, China’s stock market hasn’t kept up with the country that has become the world’s second largest economy following the U.S.. Facing this bear stock market, Guo Shuqing, the new chairman of the China Securities Regulatory Commission (CSRC), seems confident in China’s stock market, saying that the blue chips in China’s stock market are of real value, although overhaul and reform are necessary now to move the market forward. He has raised several new ideas that may contribute to this needed reform.

Source: KapronAsia, 10.04.2012

Filed under: China, Exchanges, Standards, , , , , , , , , ,

China Asset Management Automates QDII Investment Operations and Electronic Trading with Charles River IMS

Single platform allows straight-through processing for company’s Beijing and Hong Kong QDII investment hubs

January 12, 2011 – Charles River Development (Charles River), an award-winning provider of financial software and services to the global investment community, today announced that China Asset Management Company (China AMC) is live on the Charles River Investment Management System (Charles River IMS). China AMC is China’s largest fund manager. China Asset Management has implemented the latest Version 9 release of the Charles River IMS, which fully integrates order and execution management capabilities (OEMS) on a single platform. The implementation, delivered on time and on budget, also includes the Charles River Post-Trade module, which centralizes confirmation, trade matching, and settlement workflow and automates the post-trade process.

China AMC’s investment operations for assets managed under the Qualified Domestic Institutional Investor (QDII) scheme are now fully automated. QDII allows Chinese asset managers to invest in international assets on behalf of their clients. Users in the company’s main offices in Beijing and Hong Kong are currently using Charles River IMS. Charles River IMS interfaces with a number of third-party applications, including a Chinese domestic back-office system, and integrates with various proprietary systems.

“We looked at multiple solutions through a detailed evaluation process with the view to having a solution to support our assets in order to streamline and automate our front office investment platform,” said Lu Xiaoye, General Manager, Information Department, China AMC. “The Charles River IMS provides us with a platform that smoothly meets our current investment requirements.”

“China Asset Management is our first client in the region to automate operations with Charles River IMS Version 9, our most recent release,” said Cameron Field, Managing Director, Asia Pacific, Charles River Development. “As the QDII market in China is becoming increasingly competitive, Chinese fund managers are seeking greater efficiency and control in running their investment operations. They want to scale their business and support increasingly sophisticated products.”

In Asia Pacific, Charles River serves approximately 100 client sites across 14 Asian Pacific countries and is headquartered in Melbourne, with offices in Tokyo, Singapore and Beijing and regional presence in Brisbane, Sydney and Hong Kong. A team of fifty specialists, many of them bilingual Japanese/English and Mandarin/English speakers, provide investment managers with local implementation, consulting and support services. 

Source: Charles River, 12.01.2011

Filed under: China, FIX Connectivity, News, Trading Technology, , , , , , , , , ,

Asia E-Trading: Electronic Trading in China – Webinar September 7th

Asia E Trading presents the free  1 hour web-seminar : Electronic Trading in China

  • Overview of the Electronic Trading industry
  • Buy-side Algorithmic Trading
  • CSI300 Index future
  • Latest news on QFII and QDII
  • High Frequency Trading and Colocation
  • Update: Shanghai and Shenzhen Exchange

Speakers are:

Lionel Sancenot – Sungard- MD NE Asia & Greater China

Bill LiuQing Ma Investments -Portfolio Manager

Zennon Kapron – KapronAsia- Principal

REGISTER HERE

Date: 07. September 2010

TIME: 5pm Hong Kong, 10am London, 5am New York

The seminar will be recorded and available on demand

Filed under: China, Exchanges, FIX Connectivity, Trading Technology, , , , , , , , , , , , , , , ,

China’s QDII ETFs … taken with a pinch of salt

Despite the fanfare from QDII ETF issuers and the Shanghai Stock Exchange, these products are unlikely to achieve the lofty aims set for them.

If Shanghai Stock Exchange’s general manager, Zhang Yujun, is to be believed, China’s new generation of exchange-traded funds under the qualified domestic institutional investor (QDII) scheme will be ready for launch shortly.

The Shanghai bourse is keen to put its hotly anticipated products onto the market as soon as possible. It has marked 2010 down as a year of innovation, with the number of domestic and overseas ETF launches potentially hitting 10 for this year.

But it’s not the domestic ETFs that industry execs in Shanghai or around the region are buzzing about, but the overseas ETFs the SSE is championing. Market players are wondering what the developments will mean for the QDII market and what China’s fund flows in the region will look like after these products are made available.

The names now lining up in the QDII ETF pipeline include: China Southern, with its planned launch of a S&P 500 tracker; Beijing-based China Asset Management, which is going with Hong Kong’s Hang Seng Index; Harvest Fund Management, the new proud owner of Deutsche Asset Management’s Asian investment platform, using the Dow Jones Industrial Average; Shanghai’s Fortune SGAM, which will soon see its foreign stake transferred to Société Générale’s alternatives arm, Lyxor, and whose ETF tracks the Topix Core 30; not to mention Huaan’s newly announced initiative to track the FTSE 100.

In one fell swoop, the SSE is making available assets from around the world. Investors in China, at the click of a trade, will be able to access asset classes from US and UK equities to regional Asian exposures and Hong Kong and Japanese stocks.

(The list above does not cover Guotai Fund Management, one of the earliest Chinese houses wanting to license an index for an overseas ETF, which recently realised it will not attract enough liquidity for a niche index such as the Nasdaq 100. It is now quietly calling its product an “index-tracking fund”, instead of an ETF. Nor does the list include Penghua Fund, whose high-profile announcement of its supposed deal to have contracted three MSCI Barra indices was never confirmed by MSCI.)

Zhang says the Shanghai bourse wants to play its part in ‘standardising’ asset management. Index-based products are easily understood by investors, and through the standardisation process, the SSE believes it will bring transparency and even discourage moral hazards among asset managers.

Better yet, since trading and management fees for ETF instruments are traditionally the lowest for products globally, the introduction of ETF competition into the Chinese market should help bring down the high fees usually seen in the active management sector. And the way Zhang sees it, passive and index-based investments will eventually outperform.

Yet all these laudable ambitions should be taken with a pinch of salt. Far from having developed ETFs that come up to expectations, the SSE’s versions of these products and the underlying mechanism are hardly on a par with developed-market ETFs.

In particular, sources say the SSE boss’s comments are meant for domestic consumption — the exchange has been publicly pressuring the China Securities Regulatory Commission (CSRC) into approving the ETF launches, which were planned to have happened as early as November last year.

Why the regulatory hesitation? The CSRC was an early champion of introducing more liquid and transparent ETFs to China. But the SSE has not resolved the multiple technical barriers limiting the listing of an efficient overseas product in the country, as is revealed by an early blueprint for the Harvest Dow tracker jointly designed by Harvest and the SSE, and made public by the exchange. The SSE has made compromises in the design and the trading mechanisms of these supposed ETFs.

Amid the fanfare created by the issuing fund houses and even the SSE itself, one key point appears to be overlooked. The unspoken truth is that since the bourse has failed to tackle the underlying issues, the planned ETFs could only trade on exchanges as closed-end funds and would largely fail to deliver the many benefits normally expected of genuine ETFs.

These products will face challenges from day one, including: time differences in settlement cycles between the SSE and the exchange of the underlying index’s traded market; the lag in trading hours between China and underlying securities; the limitations of China’s lack of market-making mechanisms, and its reliance on its unique arbitrage mechanisms for levelling ETF traded prices and net asset values; and China’s foreign exchange restrictions, which currently only allow for monthly repatriation of capital. All of which the SSE has acknowledged in its white paper on ETFs that is available to the public.

Bound by these limitations, these products will not be able, for example, to perform continuous creation of units like normal ETFs, unlike even the very same strategies traded in Hong Kong. The NAVs will be largely static during the trading hours in China, though the ETF prices will be subject to supply-demand swings. (Hong Kong’s platform is backed by market-makers, unlike Shanghai’s, which is highly sensitive to liquidity and the level of trading among arbitrageurs on underlying strategies.)

The question then becomes: will China ever attract enough interest among arbitrageurs to trade on these faraway markets without real-time information? After all, when China trades, the US and the UK markets will be largely closed. Even for markets that sit in Asian time zones and close at hours overlapping China’s, there will be time differences on the settlement cycles. Arbitrageurs, therefore, will have to trade by assuming and incurring all risks themselves.

For example, a Ping An Hong Kong subsidiary doesn’t trade on the books of Ping An’s mainland entity. Legal status still withstanding, they are very different entities. One unit south of the border going short, cannot be reconciled from an accounting perspective by a separate unit going long north of the border. So, from where and how will these arbitrageurs emerge?

Because of the many compromises the Shanghai bourse has made to fit QDII ETFs into the existing — but highly unique — domestic ETF mechanism, the forthcoming international instruments can largely only be ETFs in name but not substance. An even better way to understand them is actually to see them as the equivalent of ‘listed open funds’ or ‘Lofs’ — products peculiar to China.

Ultimately, QDII ETFs are no different from closed-end funds — so why the current fuss over them? Sources close to the Shanghai bourse’s advisory panel say there’s really no reason for it — they are just another group of products to add to China’s well stocked shelf.

Nonetheless, they offer a slightly better alternative to the many internally managed and largely cost-return-inefficient QDII active funds now available in the market. And the idea of ETFs from a marketing perspective will no doubt catch on.

But even the mere illusion of innovation in the QDII market may be a false dawn. Both active and passive QDII managers will continue to be plagued by domestic expectations of further renminbi appreciation and by the bad reputation of the first generation of QDII products still freshly and firmly fixed in the minds of Chinese investors.

To wit, E-fund — the second biggest Chinese fund house, no less — kicked off the year with a fundraising attempt of just $86.6 million for its first QDII product.

Source: AsianInvestors.net, 10.03.2010 by Liz Mak

Filed under: Asia, China, Exchanges, Hong Kong, Japan, News, , , , , , , , ,

China Merchants receives QDII approval despite ING troubles

China Merchants Fund Management will test domestic appetite for global resources investments with a new fund, for which shareholder ING is a sub-advisor.

China Merchants Fund Management — a joint venture between China Merchants Bank, China Merchants Securities and ING Investment Management — has secured approval for a qualified domestic institutional investor (QDII) product.

The China Securities Regulatory Commission (CSRC) has approved the Shenzhen-based firm’s product plan to launch a global commodities fund, with ING IM as the sub-advisor. The Dutch firm will be responsible for supplying investment research and strategic and tactical asset-allocation advice to the fund. The product will most probably be structured as a fund-of-funds.

“Currently we have no resources fund or strategy into which this fund will invest,” says Edmund Lacis, regional head of wholesale and business development at ING IM in Hong Kong. “We will be leveraging our existing global knowledge and expertise to develop a new strategy for this fund.”

Grant Zhang, portfolio manager at China Merchants, tells AsianInvestor he will act as the fund’s manager. He started as a securities analyst at China Merchants Securities.

The QDII approval comes on the heels of a recent QDII fund launch by Guangzhou-based E-fund, which began fundraising for a self-managed Asian equity strategy on December 7. E-fund has yet to announce how much money it has attracted. Up next, Penghua has an $800 million quota for a manager-of-managers strategy with shareholder Eurizon Capital, while Changsheng has a $700 million quota for a pending Goldman Sachs-advised product.

Sources say Guotai also secured a $700 million quota for a tracker fund based on the Nasdaq 100 yesterday.

The State Administration of Foreign Exchange (Safe) only resumed quota handouts in October, after a 17-month hiatus.

The CSRC’s approval of China Merchants’ product plan has raised concerns among some industry observers. The green light has been given despite the uncertainty over ING IM’s future ownership due to the European Commission-mandated break-up of its parent. In October, ING was told to offload its investment and insurance businesses by 2013. Institutional investment consultants Watson Wyatt and Mercer have since withheld their ‘buy’ recommendations for the group for that reason.

Even before the ruling, ING had been seeking buyers for its businesses in Asia and the US, to raise funds to repay the bailout capital it has received from the Dutch state. In Asia, it has already sold off its Taiwanese insurance, Australian wealth management and Asia-wide private banking businesses.

In a Financial Times interview on December 21, new global chief investment officer Jan Straatman outlined a plan to break up ING’s 300-strong investment team in Europe into 14 different boutiques. These units will be organised by the asset classes they invest in. Straatman is quoted as saying that the same structure will be applied in the Asia-Pacific region and the Americas, despite admitting that he has not consulted local staff on the decision.

The plan appears to contradict previous goals set when ING Group split the investment management and real estate investment business from the main balance sheet and combined them to improve synergies by centralising back-office functions and combining sales roles. The firm is facing increasing difficulties in retaining talent.

These variables are viewed as a risk to the management of China Merchants’ fledgling QDII fund and to its future investors.

That said, an overseas commodities fund will be a novelty to investors on the QDII scene. China Merchants has a positive house view on the long-term global demand for commodities. Having gained CSRC approval, the next step for ING and China Merchants is to secure a foreign exchange quota from the State Administration of Foreign Exchange.

China Merchants’ move will mark a potential point of differentiation in the sector. Its global resources theme will be a first. Of the 10 existing QDII mutual funds in the market, the main asset types have been global equities, Hong Kong H-shares, red chips and Chinese concept stocks in Asian equities.

Moreover, the launch will be backed by the distribution prowess of China Merchants, China’s third largest brokerage. China Merchants Bank and China Merchants Securities are among the most successful private wealth management providers in penetrating the growing Chinese middle class. The bank went public in an IPO in 2006, followed by the securities arm last November.

Shanghai-based consultancy Z-Ben Advisors believes the group’s IPO last year has distracted it from the business of fund management. Based on assets under management, China Merchants’ ranking slipped 11 places from 18th in 2008 to 29th last year, with Rmb35.6 billion ($5.2 billion) in AUM as of December 31. This can be partially explained by the string of portfolio managers it lost last year, including You Hai, Hao Jianguo and Huang Shunxiang.

According to data from investment consultant Morningstar, of China Merchants’ 11-strong investment team, eight have been with the firm for less than three years, and four of those have less than one year of service. CIO Zhang Bing has been with the firm for about four years.

The most experienced person at China Merchants Fund, Yang Yi, does not manage funds. He has been there since 2003, but his expertise is only available to institutional investors or high-net-worth clients who have signed up to China Merchants’ segregated accounts.

Z-Ben Advisors analyst Zhang Haochuan expects demand for the new fund to be weak. China Merchants has freshly finished a round of sales totalling Rmb2.6 billion for its small- to medium-cap fund, so customers’ appetite for further China Merchants products may be subdued.

In addition, notes Zhang, Chinese investors don’t need to go offshore for commodity investments. “Unless there are additional derivatives involved, investors will probably get higher exposure by investing in local commodities companies,” he says. “They don’t hedge [their books] as much.”

Source:AsianInvestor.net, 07.01.2010 by Liz Mak

Filed under: Banking, China, News, Risk Management, Services, , , , , , , , ,

China: Thanks but no thanks: E Fund declines help on QDII debut

The Chinese fund house’s prospectus for its Asian equities product, slated for launch next week, indicates it will manage the fund without MOU partner State Street.

Guangzhou-based E Fund Management, the second-largest Chinese fund house in asset terms, is poised to launch its first QDII fund, by itself, rather than with a foreign sub-advisor.

The firm is set to launch an Asia-Pacific equities fund under China’s qualified domestic institutional investor programme on Monday, December 7. Despite having signed a memorandum of understanding last year with State Street Global Advisors, E Fund will manage the portfolio itself.

The firm’s investment management team is in Guangzhou but it also has an office in Hong Kong run by Zhang Xiaogang that is expected to play a role. Calls and e-mails to E Fund were not returned by press time.

Executives at investment firms in Hong Kong say Beijing-based Harvest Fund Management’s acquisition of the Asian equities platform of DWS, the retail arm of Deutsche Asset Management, was the watershed event. This proved the determination of China’s fund houses to manage their own overseas investment products.

ICBC Credit Suisse Fund Management has also decided to run its own QDII funds. E Fund is the first firm independent of any foreign partnership to do so.

Foreign executives downplay the notion that these moves are simply about fees, aware of cases such as China Southern Fund Management’s decision to discontinue a sub-advisory agreement with BNY Mellon Asset Management, which was partly based on fees. Rather they reflect the ambition among Chinese firms to build international expertise in house.

“These fund-management companies have been supported by foreign advisors for 10 years, in some cases, and they’ve learned a lot,” says one banking executive in Hong Kong.

A spokesperson at SSgA says the firm does not have a relationship with E Fund. The firm declined to discuss the terms in the MOU.

Peter Alexander, principal at Shanghai consultancy Z-Ben Advisors, says E Fund’s move should not be interpreted as part of a wholesale trend. Although the biggest Chinese firms are keen to control their own products, the majority are probably not ready to follow suit.

Alexander says other QDII funds slated for launch early next year still look as though they will work with appointed foreign partners, including China Universal Fund Management (with Capital International) and Bosera Fund Management (with Singapore’s Fullerton).

But global asset managers that have written confident reports to headquarters regarding the QDII sub-advisory opportunity set may need to review the space, particularly if E Fund’s QDII product is rated a success, he warns.

The State Administration for Foreign Exchange has allocated $1 billion to the E Fund Enhanced Asia Pacific QDII Fund. Safe has also allocated QDII quota to Bosera, China Universal and China Merchants Fund Management, a joint venture involving ING Investment Management.

E Fund’s primary distributor in China is ICBC, which suggests little difficulty in attracting assets. Its QDII product will also be cheaper than its peers, charging 1.5% versus the 1.85% that has been charged for other QDII funds. Although called an Asian equities fund, it actually has a 60% ceiling on stocks, with a minimum 40% in cash or bonds. The Hong Kong market is expected to play a big role in the portfolio.

The QDII launch comes on the heels of E Fund’s successful launch of an exchange-traded fund, which raked in $2.8 billion last week. The firm was ranked 54th in AsianInvestor magazine’s rankings of fund houses by assets sourced from Asia-Pacific clients (based on September figures; see our December edition); its recent exploits suggest it will have climbed a few more rungs.

See also

E-Fund (GF Securities) ETF raises $2.8 billion, as Bosera gets ETF approved

Source: AsianInvestor.net, 04.12.2009

Filed under: Asia, Banking, China, Hong Kong, News, Risk Management, Services, Wealth Management, , , , , , , , , , ,

E-Fund (GF Securities) ETF raises $2.8 billion, as Bosera gets ETF approved

The trend in China towards passive investing bodes well for both asset managers’ products.

China’s E-Fund Management closed capital-raising for its Shenzhen 100 ETF feeder fund last Friday, having attracted a total of Rmb19 billion ($2.8 billion) in a month since October 28. Meanwhile, rival asset manager Bosera yesterday announced that it has received approval to launch a Shanghai mega-cap ETF and feeder fund.

As a result of the new inflows, E-Fund now ranks as the second-largest fund manager in China, with Bosera and Harvest dropping to third and fourth respectively, notes Shanghai-based financial consultancy Z-Ben Advisors. Zhang Haochuan, senior analyst at the firm, attributes the success of E-Fund’s products to “strong brand awareness and performance”.

However, Bosera may not prove quite as much of a hit, one fund manager told AsianInvestor, since it is launching a new ETF rather than setting up a feeder for an existing ETF. Lack of a track record will hurt the fundraising results, he says.

“Demand in China for funds remains firmly intact, if perhaps heavily skewed towards products with a passive investment style,” says Zhang. “And, for those fund managers with a following plus track record, demand can be significant.”

The consultancy feels it is no great surprise that E-Fund was able to attract so much demand, citing the “stunning” 101% return posted by the original E-Fund Shenzhen 100 ETF year-to-date. “Add this to the ability to tap into the bank channel for new inflows (which feeder funds are designed to do),” says Zhang, “and it makes considerable sense to launch fundraising on this scale.”

Moreover, not only was E-Fund’s new ETF launch the industry’s second largest for 2009, but the company can also claim the third-largest new launch, as the E-Fund CSI 300 Index Fund raised Rmb16.7 billion in August.

E-Fund’s success highlights the advantage of having direct access to fund flows from the banking channel, says Zhang. When issuing an ETF without a feeder fund, assets can only be raised either from direct sales initiatives or from securities firms.

To tap into China’s massive savings, fund managers must turn to the feeder fund, adds Zhang. Bank of Communications Schroders also recently demonstrated the benefits of this approach. The firm pulled in Rmb8 billion for its Shanghai 180 Corporate Governance ETF launch, nearly 90% of which came via the feeder fund.

Having completed the launch of the ETF feeder fund so quickly, E-Fund’s sales and marketing team can redirect their full attention towards its first qualified domestic institutional investment (QDII) product offering. With China’s State Administration of Foreign Exchange formally granting E-Fund $1 billion in quota in early October, E-Fund is ready to make its first offshore foray.

However, Z-Ben doesn’t expect QDII fund demand to be anything like it was in 2007, and fund managers’ QDII targets have become more modest as a consequence. E-Fund’s QDII product even includes a $1 billion quota maximum, thus limiting access and, perhaps, “turning up the heat on buyers”, says Zhang.

The consultancy had initially expected E-Fund’s QDII product to raise around $500 million at launch, with the quota balance to be applied to separately managed accounts. “Given the massive success of E-Fund’s feeder fund, however, a fast sell-out is now looking more possible,” says Zhang.

Source: AsianInvestor.net 01.12.2009

Filed under: Asia, China, News, Risk Management, , , , , , , ,

QDII:Chinese index products face obstacles

Meanwhile, Chinese investors should buy foreign assets, and ETF/index products are the most efficient way to do so, say panellists at a recent conference.

The development of index products has made some progress in China, but still faces key issues, according to panellists at an event this month in Shanghai. They also argued that Chinese investor education must be addressed before the qualified domestic institutional investment (QDII) market will really take off.

The SG China Markets Forum, organised by French bank Société Générale, focused primarily on the QDII, with one panel discussing index product development in China.

That panel comprised: Song Hong Yu, head of research at China Securities Index; Zheng Xu, director in the international cooperation and product development department at Yinhua Fund Management; Zeng Fan Qing, head of product development at Fortune SGAM; Joseph Ho, head of ETF sales and marketing at Société Générale; and Frank Benzimra, director of equity derivatives structuring at SGI Index, part of Société Générale.

The index market has continued to grow, they said, thanks to the high liquidity of indexed products, economies of scale, deepening of product knowledge, and increasing demand for both risk management and an improved legal framework.

However, there remain problems affecting the market’s development, including asset managers’ strategies of seeking higher commissions by selling actively managed funds, said the panellists. The situation is exacerbated — as in Japan and South Korea — by regulations allowing the same securities house to sell active funds and exchange-traded funds (ETFs), the former with a significantly higher profit margin.

Nor do system limitations help matters. The separation of the Shanghai and Shenzhen stock exchanges are slowing the pace of ETF development in China, argued the panelists. And ultimately there is a lack of dedicated market educators — again, as in Japan and South Korea — since industry players are unwilling to take up this role due to the aforementioned conflicts of interest over active/passive fund selling.

As for investing in overseas assets, ETFs/indices are the most efficient and cost-effective way to manage a global portfolio, argued panellists. And despite the strong performance of the Chinese market this year, there are still good reasons for investors to buy foreign assets, including: sharing of growth in global economic developments, diversification, limited local investment tools apart from equity investments, and expensive pricing of shares on Chinese stock exchanges.

So how much Chinese money is likely to flow overseas — and where — under the revised QDII scheme? That was the subject of another panel at the event. The participants were: David Chang, assistant president at GuoTai Asset Management; Dong Bin, head of QDII at Citic Securities; Sandru Lu, a lawyer at Llinks; and Du Jun, head of institutional investment at Fortune SGAM.

The consensus was that there will be a huge increase in product applications under the QDII scheme, which now stands at $90 billion. However, the main issues hindering the market’s growth are insufficient investor education and expertise.

Local investors should not only take a close look at the legal framework of all the investable products when considering overseas assets and should not only focus on returns. More, panellists felt that the Lehman Brothers bankruptcy and aftermath has affected local investors’ understanding of overseas markets, meaning there will be a discrepancy between local and foreign investors’ understanding and execution, even for very simple products.

For overseas markets, it was pointed out, there are more stringent rules and strategy, whereas for the local market there is more flexibility in execution. The panellists felt that a better way to approach this situation is to combine the two approaches.

As for where domestic investors should put their money, participants felt commodities is a promising asset class, due to dollar weakness and the lack of precious metals/resources. They also suggested making some allocation to overseas structured products/derivatives to help achieve a stable return, and for those with a higher risk tolerance making use of statistical/quantitative strategies.

With reference to managing a full global/China portfolio, Citic said it will put 30% in the local market, 30% in overseas markets, 20% in hedge funds and 20% in strategic products. GuoTai will put a large portion in China and India.

Source: AsianInvestor.net, 30.11.2009

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China QDII: Overseas ETFs on Agenda of Chinese Fund Managers

Chinese fund managers are preparing overseas exchange-traded fund products, though there is not a timetable yet for the approval of such products.

Chinese fund managers are planning overseas exchange-traded fund products in response to the decision by the State Administration of Foreign Exchange to grant overseas investment quotas to two companies.

SAFE, the regulator of China’s foreign investments, granted overseas investment quotas of US$1 billion to E Fund Management and US$500 million to China Merchants Fund on Oct. 23. It is expected to grant further quotas this year, Caijing has reported.

Penghua Fund Management Co. is preparing to launch a series of ETFs tracking global indices. It has licensed indices from MSCI Barra, including MSCI USA, MSCI Emerging Markets, and MSCI EAFE, which tracks stocks in Europe, Australasia and the Far East, a Penghua employee said. The ETFs will launch next year at the earliest, the employee said.

China Asset Management Co. is preparing a fund tracking the Hang Seng Index, said a source from the fund manager. An industry source said the funds will be launched on the Shanghai Stock Exchange.

The emergence of these exchange-traded funds could lead to capital flight, but the new funds will still be subject to regulations and quotas on foreign exchange that govern the Qualified Domestic Institutional Investors, Caijing reported. The overseas ETF operations are included under the total QDII quotas.

The Shanghai Exchange will be a testing ground for these overseas exchange traded funds, according to a source at Bosera Asset Management. Bosera had earlier won the development rights to an ETF tracking the Shanghai exchange.

According to Barclays Global Investors, as of June 30, 2009, there were 1,070 EFTs, run by 93 assets management companies, with US$789 billion under their management.

Source: Caijiang, 04.11.2009 by Zhang Bing

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China: SAFE resumes QDII quota allocation

E-Fund and China Merchants are first to launch new QDII funds after a 17-month drought.

Asian Investor

On Friday (23.10.), the State Administration for Foreign Exchange (Safe), the forex arm of the People’s Bank of China, provided quota to two Chinese fund management companies to launch products under China’s qualified domestic institutional investor (QDII) programme.

These are the first foreign-exchange quotas allowed for QDII funds in 17 months.

Peter Alexander, director at Shanghai-based consultancy Z-Ben Advisors, says: “Policy change is typically the key driver of market expansion in China and Friday’s events signal strongly to us that the QDII business is about to accelerate very quickly.”

Guangzhou-based E-Fund received approval to invest up to $1 billion overseas, and Shenzhen’s China Merchants Fund Management Company was granted $500 million. Both will launch their debut QDII products, with E-Fund targeting Asia ex-Japan equities, and China Merchants ready with a global resources fund.

Z-Ben Advisors in Shanghai says at least four more firms are expected to win quota over the next two months. These include Bosera, Changsheng, China Universal and UBS SDIC. There may be up to $4 billion of quota issued in this period.

There is a current backlog of around 20 QDII quota applicants, and Z-Ben says the entire slate could be cleared over the course of 2010.

Safe has also made known its preference for more customised QDII products.

QDII funds had a rocky 2008, as the first batch had been launched during the peak of the 2007 bull run in global equities. But this year, as markets have recovered worldwide, fund houses have been itching to launch new products, to take advantage of low valuations.

About 20 firms have won the right from the Chinese Securities Regulatory Commission to launch QDII products but have been held up by Safe.

China Merchants is said to be ready to launch its QDII fund now. E-Fund is in the midst of marketing a Shenzhen-tracking ETF and may not be able to focus on the QDII fund for several weeks.

Source: AsianInvestor.net,27.10.2009


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China Central Government Urged to Regulate Private Equity and Venture Capital

» The central government should assume regulation of private equity and venture capital firms, which are now mainly subject to local government rules, said Wang Ou, researcher at the China Securities Regulatory Commission.  He also urged regulators to treat such firms as financial institutions, contrary to their current legal status in China.  Wang said the CSRC is stepping up research on building a Chinese-style regulatory framework to support development in the private equity and venture.

Full article in Chinese 中国 Source: Caijing, 20.10.2009

Currently Private Equity firms are in a legal grey are, which allows Chinese firms to trade in overseas markets, and foreign firms to trade A-shares and Futures on Chinas Exchanges, without restriction and costly processes (in a stark opposited to QDII’s and QFII’s ), amongst other investment and trading activities.In contrast to the other non-regulated funds and trading firms, PE firms can apply for a foreign curreny account by SAFE introduce and retract large sum’s.

Note by FiNETIK, 20.10.2009

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在2009中国基金论坛与Charles River相会 Invitation to 3rd Fund Forum China on 21st by Charles River

Charles River Development 高兴地宣布我们将参加2009102122日在上海万豪虹桥大酒店举行的2009年第三届中国基金论坛。

请在大会期间参观Charles River的展位以了解Charles River投资管理系统(Charles River IMS) 。请留下您的名片以获得赢取一台iPod的机会!
请点击
此处 <http://www.fundsforumchina.com/agenda_cn.html> 查看完整的会议议程。 3rd Fund Forum China 21-22nd October 2009 http://www.fundsforumchina.com/index.html

Charles River IMS是一种全方位的软件套件,旨在满足中国投资经理的复杂及不断变化的需求。Charles River IMS全面支持中文,并具有对超过35种以上的国内证券类型以及相关工作流程的支持。客户可应用此系统进行交易,执行以及对复杂的国内和国际资产类别,组合及条规进行管理。系统也通过与一家国内普遍使用的交易系统的双向实时接口提供对国内交易所的直接连接。随信所附的是Charles River IMS(9)的主要新增功能的简单概括以供您参

如需更多详情,请联络:
Mark McBurnie
+61 400 016 188
MarkMcBurnie@crd.com <mailto:MarkMcBurnie@crd.com>

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Charles River Development Expands Global Reach with Beijing Office / 拓展全球业务 – 建立北京办事处

Charles River Development (Charles River), a front- and middle-office software solutions provider for investment firms, today announced the expansion of its global operations with a regional office in Beijing, China. Located in the Excel Centre in the Financial Street area of Beijing, the office is staffed with experienced Charles River employees and multi-lingual Chinese nationals who provide China-based investment managers with professional implementation, consulting and support services. Charles River’s client base in China includes China Life Asset Management Company, the country’s largest institutional investor.

“The opportunity to invest in international securities has increased Chinese asset managers’ demand for front- to middle-office systems that can support complex investment strategies including domestic Chinese instruments, products and workflows,” said Tom Driscoll, Managing Director, Global, Charles River Development. “The Charles River Investment Management System (Charles River IMS) can address any specific regulation, asset class, trading or language requirements our Chinese clients might have.”

Charles River IMS is available with full Chinese language capability and supports over 35 Chinese security types and associated workflows. Clients can use the system to trade, execute and manage complex Chinese domestic and international asset classes, portfolios and regulations. The system also offers direct Chinese exchange connectivity via a bi-directional real time interface to a widely-used domestic trading platform.

“Charles River has always grown its business organically,” said Cameron Field, Managing Director, Asia Pacific, Charles River Development. “We build local teams of Charles River experts who understand the local investment management market, language and culture. These teams support our clients from local offices. And we make a significant investment to localizing our solutions. For the past three years we’ve taken this approach in China.”

Continues Field, “We are pleased to be the first global investment management solutions provider in China, and are continually enhancing our local solution. Charles River is currently working on a number of strategic initiatives with key market bodies and closely monitoring how the adoption of NGTS and the STEP Protocol will enhance connectivity, data integration and STP for Chinese clients.”

一家向投资公司提供前台和中台软件及方案的供应商), 今天宣布在中国北京建立办事处以扩展其全球运营。北京办事处设于金融街的卓著中心,配备富有经验的Charles River员工及通晓多国语言的大陆员工,以向大陆投资管理公司提供专业的项目实施,咨询及支援服务。Charles River在中国的客户包括中国最大的机构投资者 – 中国人寿资产管理公司。

“投资于国际资产使得中国的资产管理公司对前台和中台系统的需求增加,而这些系统必须支持复杂的投资策略其中包括中国国内资产,产品及工作流程。” Charles River Development全球董事总经理Tom Driscoll说。“Charles River Investment Management System (Charles River IMS)可以支持我们的中国客户可能需要的任何条规,资产类别,交易及语言方面的需求。“

Charles River IMS具有全面的中文功能,并支持35种以上的国内证券类型及相关的工作流程。客户可使用Charles River IMS进行交易,执行以及管理复杂的国内及国际资产类别,组合及条规。系统也通过与一家国内普遍使用的交易平台的双向实时接口提供对国内交易所的直接连接。

“Charles River一直以来都是在有计划地拓展自己的业务,“Charles River Development亚太地区董事总经理Cameron Field说。“我们建立了解当地投资管理市场,语言及文化的富有经验的本地团队。这些团队从当地办事处支援我们的客户。而且我们投入可观的投资以使我们的方案本地化。在过去的三年里我们在中国一直是这样做的。“

他接着说,”我们非常高兴我们成为首家进入中国的全球投资管理方案提供厂商,并会继续增强我们的本地化方案 。Charles River目前正与主要市场机构联系并正在进行一些战略措施,我们也在关注新一代交易系统以及STEP的采用将会如何使中国客户的连接性,数据集成以及直通式处理的功能增强。

Source: Charles River, 13.10.2009

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