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China’s securities regulator is exploring expanding index-based investing by allowing fund firms to launch multi-asset exchange traded funds and other innovative index products.
The potential moves are part of China’s ongoing efforts to boost longer-term stock holdings and revive its capital markets, which in January included telling fund firms to increase their A-share holdings by at least 10 per cent annually over the next three years.
The China Securities Regulatory Commission has said in a statement that introducing multi-asset ETFs and other index products must be done “steadily and prudently”, on the premise that “risks are measurable and controllable and investors are effectively protected”.
The regulator will also study the feasibility of “in-kind subscription and redemption model cross-market bond ETFs” as well as the interbank market transferable index funds.
This article was previously published by Ignites Asia, a title owned by the FT Group.
In addition, it said it would research the feasibility of allowing more types of underlying assets for China’s ETF products.
The new steps to promote index fund products were aimed at enhancing the asset allocation functions for Chinese investors and creating further channels via which medium and long-term capital could invest in the stock market more conveniently, the CSRC said.
One of the main goals was to “achieve a significant growth in the scale and proportion of index-based investment in the capital market”, the statement said.
China Securities Index Company last month launched the CSI Dividend Low Volatility Equity and Bond Constant Proportion Indices, which include three indices made up of high dividend, low volatility stocks and constituents of the CSI Treasury Bond Index.
To reduce investor costs, the CSRC said it would, “in a timely and appropriate manner”, guide industry participants to reduce the management and custodian fees of large broad-based equities ETFs.
Major domestic fund houses in November slashed fees on 36 broad-based ETFs and ETF feeder funds in a co-ordinated move.
CSRC said it would “steadily and prudently” advance ETF cross-listing partnerships and the practice of licensing onshore indices for offshore products and derivatives, in a bid to attract foreign capital to the A-share market via index-based investment.
Three large Chinese asset management firms have paired up with their Brazilian counterparts to plan cross-listing ETFs in each other’s markets, with the products pending regulatory approvals, sources told Ignites Asia.
The securities regulator also pledged to enhance the monitoring of ETF subscription, redemption and trading to promptly identify and resolve abnormal behaviours and risks.
It also vowed to “proactively develop” equities ETFs, “steadily expand” bond ETFs on the condition of effective containment of liquidity and credit risks, and provide more derivatives such as ETF options, stock index futures and stock index options.
*Ignites Asia is a news service published by FT Specialist for professionals working in the asset management industry. Trials and subscriptions are available at ignitesasia.com
