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China Post Global to launch A-shares smart beta ETF

China Post & Capital Global Asset Management plans to launch Europe’s first A-shares smart beta ETFs later this year, and possibly launch them in Asia too, said London-based managing director Danny Dolan.


PA Europe

“A lot of European investors have been underweight China for several reasons,” Dolan told FSA. “First, a lack of familiarity with the market. Most European investors don’t have in-house research coverage on China.

“They are also wary of volatility as we saw a sharp correction in 2015 and early 2016 after the bull market run in the Chinese domestic equity markets.”

The firm’s two A-share smart-beta ETFs, one with a focus on quality companies and one targeting minimum variance (low volatility), aim to address these issues, he said.

The firm did not specify which European countries it plans to target.

The quality company ETF should appeal to investors who don’t have the A-share research capability to analyse a basket of quality Chinese companies in a low-cost way, he said.

For the minimum variance strategy, “the allocation [aims to be] less risky than plain vanilla products”, he added.

Dolan believes the product strategies will position it well against strong competitors, which he claims are offering more simple exposure to China. For instance, the FTSE China A50 Index gives investors a bias toward the financial and industrial sectors, which have a higher level of leverage and debt than other sectors, he said.

Chinese asset management rivals such as Harvest, which has a partnership with Deutsche Asset Management, GF International, Bank of China International, which partnered with Commerzbank, E Fund Management and CSOP, have all introduced A-share focused ETFs in Europe over the past three years.

China distribution

China Post has nine ETFs listed in Frankfurt and Zurich, including a smart-beta Japan ETF that debuted last month. The firm’s gold ETF was also registered in Japan last month and is distributed by SMBC’s securities arm, Dolan said.

“In the long term, we definitely see our Chinese parent group distributing the ETFs in mainland China. There’s been a limitation on [capital outflow] since early 2016, but we see that changing in the next one to two years.”

The MSCI’s June decision to to include A-shares on its global indices is also expected to ease regulatory limits on capital outflows by bringing more foreign capital into China.

Dolan added that the firm may list products in Hong Kong for sale through the planned ETF Connect between Hong Kong and China, depending on the finalised rules.

China Post Global is the international arm of Beijing-based China Post & Capital Fund Management, a mutual fund joint venture between China Post Group and Capital Securities (both state-owned companies) and Japan’s Sumitomo Mitsui Banking Corporation.

The subsidiary, with offices in Hong Kong and London, has about $1bn of assets under management, in which about $330m is from the ETF business it acquired from Royal Bank of Scotland in March 2016, according to the firm.