Asia’s first offshore renminbi bond exchange-traded fund (ETF) listed on Tuesday in Hong Kong. ETFs continue to be keenly sought after in Asia, with inflows seen last month and new products being introduced.
The iShares RMB Bond Index ETF, which was listed by iShares Asia Trust, is a renminbi-denominated physical ETF. It is traded and settled in both Hong Kong dollars and renminbi, each currency bearing a separate stock code.
This product increases the number of renminbi-denominated ETFs listed on the Hong Kong exchange to seven and the total number of listed ETFs to 110, including three bond ETFs.
Romnesh Lamba, co-head of global markets at Hong Kong Exchanges and Clearing (HKEx), said that he considers this to be a “milestone in the development of renminbi products on the HKEx platform.”
Market sources said the ETF would appeal to investors that are wary of OTC trading and required minimum sizes. A spokesperson for Credit Suisse said it would suit retail investors with renminbi cash savings who are “looking for higher yields without incurring lock-ups and daily conversion limits on their deposit accounts.”
Passive investing through ETFs continues to be a popular theme in Asia. ETF inflows in Asia exceeded US$5 billion in May 2013, most of which came via one specific product, Daiwa’s Topix ETF. That inflow represents a significant rise from US$1 billion of inflows n April.
Equities remain the hot asset class in Asian ETFs. In May, equity-linked ETFs pulled in 80% of the incoming US$5 billion.
Bond ETF demand in May was US$235 million, with South Korea attracting most of the inflows (US$194 million).
“Fixed income ETFs represent a big opportunity for Asia considering that they currently represent less than 5% of the asset under management versus a percentage of around 20% in the European and US market. With Asian fixed income markets becoming more liquid and with Asian countries improving their rating we should see more and more products in this space,” said Marco Montanari, head of passive asset management, Asia Pacific, Deutsche Asset & Wealth Management.
There were 11 new ETFs launched in May, which ended the month with close to US$1 billion in assets.
Japan’s ETF demand faltered at the end of May, as the markets fell upon concerns that the Bank of Japan’s stimulus efforts might not be working. There were net outflows from Japan ETFs in the last week of May and first week of June. There were also outflows from Chinese ETFs of US$150 million, which represented the fourth straight month of money leaving that sector, as Chinese economic data disappointed.