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New fund product set for market debut
By Sun Min (China Daily)
Updated: 2004-11-25 08:41
China Asset Management Co Ltd will start issuing the nation's first exchange-traded fund (ETF) next Monday.
The new fund, which has been hailed as "a major innovation in the domestic fund industry," is an open-ended index fund based on the Shanghai Stock Exchange (SSE) 50 Index, which tracks the 50 most liquid blue-chip stocks in China.
But ETF differs from other existing such funds in China, as it will be listed on the trade exchange.
Investors will be able to subscribe to the fund with cash at designated sales agents between November 29 and December 24, according to sources with the fund issuers.
Investors will also be able to purchase online or subscribe with equities offline on December 24.
Holders of the funds will be able to redeem them three months after the fund contract becomes valid. ETF will then be listed on the Shanghai exchange.
SSE published detailed rules on the issue, subscription, trade and supervision of the ETF yesterday, following the China Securities Regulatory Commission's approval of the product.
Global investment manager State Street Global Advisors has offered technical assistance to the fund's development.
Industry insiders opinions are mixed, with some praising the product as a bold innovation that combines overseas expertise with Chinese characteristics and enriches the diversity of the nation's fund products in China.
But others cast doubt on the state of infrastructure construction in the Chinese market and investors' knowledge of the funds.
Shanghai Stock Exchange sources said it had paid great attention to the design of the new product and relevant rules to minimize its operational risks.
According to its new rules, investors can redeem the fund units on the day of purchase, but they can only sell the fund at least one day after the purchase. And investors can use the equities they buy on the exchange to purchase the fund on the same day.
This will allow investors to conduct arbitrage at the exchange and profit from the price gaps between the ETF and stocks, according to Zhang Biao, an analyst at Guotai & Jun'an Securities Co.
It also facilitates the smooth operation of ETF as China does not officially allow short sale.
But Xue Jirui, an analyst at CITIC Securities Co, said that the characteristics of the new product remain unknown to many Chinese investors, especially smaller investors.
"Big institutional investors may find it more appealing," he said.
But fund issuers must work hard to drum up interest among small investors.
"ETF has made substantial progress in technological innovation in the fund business, but it may take some time for the public to accept it," said Xue.
And the performance of most index funds on the Chinese market is unsatisfactory, while large-caps and blue-chips are not always popular here.
The bearish stock market may also have some impact on the new fund's performance.
"China still needs to make more progress on infrastructure construction in the bourses to make the new products effective," said Xue.
Experts have been calling for the introduction of a market maker system and more risk-hedging tools such as index futures.
China's securities clearing house has issued regulations for the trading of exchange-traded funds (ETF), paving the way for the launch of the mainland's first ETF.
The regulations, published in Wednesday editions of leading state financial dailies, were issued by the China Securities Depository & Clearing Corp. and covered registration, management and clearing of ETF trades. They will take effect immediately.
The launch of ETFs in China mark another development for its emerging capital market.
Boston-based State Street Global Advisors -- part of State Street Corp. (STT)-- owns a third of a venture with China Asset Management Co, or Huaxia, that is launching the Shanghai 50 ETF, China's first ETF.
Winnie Pun, a principal at State Street, said this first ETF may grow to at least US$300 million within 18 months of its launch. The Shanghai 50 ETF could start trading on the Shanghai Stock Exchange in December, Pun said at the time.
An ETF is similar to an index-tracking mutual fund, but it can be traded on the stock exchange like a listed company.
