Competition among exchange-traded fund (ETF) providers offering exposure to Chinese shares has heated up as iShares, the world’s largest ETF provider, enters the market and Deutsche Bank’s ETF arm plans to cut its fee on a rival product.
iShares, the ETF business of BlackRock, has launched its first China A shares ETF – the iShares MSCI China A Ucits ETF – listed in London and charging 0.65%.
Meanwhile, Deutsche Asset & Wealth Management (Deutsche AWM), the investment arm of Deutsche Bank, will cut the fee on its fund to the same level. Deutsche’s db x-trackers Harvest CSI300 Index Ucits ETF (DR) will charge 0.65% per annum, down from 1.1% per annum, effective May. The ETF is listed in London, Germany and Italy.
A shares, the equities of mainland China companies listed in Shanghai and Shenzhen, represent the largest single segment of the Chinese equity market, though direct purchase is open only to Chinese nationals and foreign investors with permissions.
BlackRock is using its quota under the renminbi-qualified foreign institutional investor (RQFII) programme, while Deutsche, which has already gained €600 million in assets for it's A shares ETF since launch in January 2014, uses the quota from its China ETF product partner, Hong Kong-based Harvest Global Investments.
However, in March Deutsche AWM gained more potential to purchase renminbi shares when it became the first asset manager to receive a German RQFII licence.
BlackRock says its iShares ETF is the only Ucits fund to track the MSCI China A International Index, which represents over 300 large and mid-cap stocks. The physical fund purchases and holds the underlying stocks.
Tom Fekete, head of product for iShares in Europe the Middle East and Africa, says: “Investor interest in China is high and shows no sign of abating. The world’s second largest economy is increasingly opening its stock market to greater foreign investment.”
Marco Montanari, Deutsche AWM’s head of passive investments, Asia-Pacific, says of the fee reduction merely that the “conditions are right”.
“The China A-shares market is rapidly becoming bigger, more liquid and more international. The success of the db x-trackers-Harvest ETF in terms of the assets it has raised in a short time, combined with the fact that Deutsche AWM now has additional potential RQFII quota from our German licence becoming available, plus additional capacity stemming from the new Shanghai-Hong Kong Stock Connect system, means conditions are right for reducing the annual all-in fee and making the fund even more attractive for investors.”
In 2014 the Shanghai Composite Index rose 58%.
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