First China A-shares ETF on SGX

Very light posting today. Saw this a while ago to share with all if you have access to buy stocks in Singapore Exchange and are interested in China A-shares. 30 times earning do not excite me, will consider when it comes down to 20 times earning. As usual, I got nothing to do with UOB.

(Business Times)FOR the first time, Singapore investors will have access to the restricted market of the China A-shares through an exchange traded fund (ETF).

The United FTSE/Xin-hua China A50 ETF, the first China ETF to be listed here, aims to raise an initial US$60 million. It will be denominated and traded in Singapore dollars.

This is also the first ETF to be managed by UOB Asset Management(UOBAM).

Chong Jiun Yeh, executive director at UOBAM, said the ETF will be priced at net asset value (NAV) for a start, with an indicative price range of between $2.40 and $2.50 per unit. The total expense ratio (TER) is estimated to be 0.94-0.95 per cent.

Given investors' appetite for the China growth story, demand from both retail and institutional investors is expected to be strong, Mr Chong added.

This is demonstrated in the performance of Hong Kong-traded I-Shares A50 China Tracker fund, which is currently trading at about 3-5 per cent premium to NAV.

The FTSE/Xinhua China A50 Index comprises 50 of the largest Chinese stocks, mainly financials and industrials. Its biggest component stock is Ping An Insurance, followed by state-owned banks.

Mr Chong noted that valuations of China A-shares 'appear relatively reasonable', with the index currently trading at 30 times price to earnings ratio, compared to its peak of more than 50 times. 'The positive cyclical China 'growth story' is expected to remain intact' as the case for policy tightening is an unlikely one, he said at a briefing yesterday.

But access to the A-shares market is restricted to Chinese investors and approved qualified foreign institutional investors (QFIIs). The upper limit on the QFII quota for any single investor to invest in China stocks is US$1 billion.

The quota available for the United FTSE/Xinhua China A50 ETF is US$100 million, as UOBAM and Rabobank - the counterparty and designated market maker for this ETF - each have a QFII quota of US$50 million.

This may cap the issue of new units and trading premium but Mr Chong said they plan to apply for an increase in QFII quotas.

With this ETF, the total number of ETFs on SGX will hit 43. Between April and September, trading volumes in ETFs hit $1 trillion. For the last quarter, trading volumes in ETFs on SGX grew by 30 per cent.

SGX's head of market development Chew Sutat said the growth prospect of ETFs is positive as investors seek simpler, transparent products. 'We certainly hope to repeat the growth rate of 30 per cent quarter-on-quarter,' he added.

Asked if the new ETF that tracks Chinese blue chips will snag trading interest in the smaller S-chips or China firms listed here, Mr Chew said he does not expect a significant impact on trading in S-chips.

'The investor profile for those who are taking a punt into S-chips versus those that the ETF hopes to attract could be quite different,' Mr Chew said. Investors also have had the opportunities to invest in China-related unit trusts and mutual funds.

UOBAM said the initial offer period for the new ETF is from Oct 29 to Nov 4. The indicative listing date is Nov 12.