Trading of the ETF, which is managed by CSOP Asset Management, starts on Sept 21

Singapore

 

SINGAPORE Exchange (SGX) announced on Thursday the listing of the world' s largest Chinese pure government bond exchange-traded fund (ETF) to meet the growing investor demand to access China' s bond markets, the second largest in the world after the US, at US$15 trillion.

 

Priced at US$10 per share during the initial offer period from Sept 10-16, the institutional-grade ICBC CSOP FTSE Chinese Government Bond Index ETF has attracted investor interest with assets under management (AUM) of US$676 million at the end of the subscription period.

 

The ETF, which has an indicative index yield of 3 per cent, is managed by CSOP Asset Management (CSOP AM), the largest RMB Qualified Institutional Investor (RQFII) manager in the market which opened an office in Singapore at end of 2019.

 

The fund replicates the performance of fixed-rate government bonds issued in mainland China as measured by the FTSE Chinese Government Bond Index (CGBI), which is compiled and maintained by FTSE Russell. It was developed in partnership with ICBC Wealth Management and ICBC Asset Management (Global) as investment advisers.

 

According to the ETF prospectus, CSOP AM will adopt a representative sampling strategy for the fund by using a limited number of securities to replicate the characteristics of the index as closely as possible. Trading starts on Sept 21.

 

The ETF marks CSOP AM' s first listing on SGX, and is also the first ETF to use the new Variable Capital Companies (VCC) framework launched by the Monetary Authority of Singapore (MAS) and Accounting and Corporate Regulatory Authority this year.

 

Jacqueline Loh, deputy managing director for markets and development at MAS, said the listing of the first China bond ETF in Singapore was most timely as it offers a low-cost and liquid avenue for global investors to access Chinese assets through Singapore, at a time when China' s bond market is increasingly opening up to more foreign participation.

 

" The debut of this product class marks a new milestone for Singapore' s financial sector, as we continue to connect global investors to Asia' s promising market opportunities," she said.

 

Noting that global fixed income investors have been turning to Chinese sovereign bonds for added diversification and yields, SGX will continue to work with issuers and business partners to develop a multi asset ETF product shelf that meets the demands of the investment community, Loh Boon Chye, chief executive officer of SGX, said.

 

The ETF has been designed to help capture the investment opportunities created by the booming China onshore bond market and its continuous inclusion in major global indices. FTSE Russell will decide next week whether to add Chinese bonds to its global benchmark. An inclusion could result in " considerable flow of assets" .

 

" We believe this China-themed fixed income ETF with relatively low cost, easy access and diversified bond holdings will suit the local investors' demand for a relatively stable yield," Ding Chen, CEO of CSOP AM, said. CSOP AM plans to launch more new products later.

 

Ms Ding said Singapore' s VCC framework played a part in the decision to launch the product here, rather than in Hong Kong, which has a bigger equity market where ETFs play a significant role. The city-state enjoys a strong comparative advantage in bonds and futures, and its VCC structure is " very efficient and easy to adopt" .

 

Melody He, managing director and head of sales and product strategy at CSOP AM, said investors in the initial offer phase included endowment funds across Asia and family offices. She expects interest to grow rapidly.

 

" There is potentially US$150 billion at least of inflow coming in with the index inclusion. We hope that these will go through the ETF structure which for investors is a very efficient structure.

 

" For now, we are looking at surpassing the US$1 billion mark very quickly. For this ETF, the expectation is at least a few billion USD. We believe that the China fixed income or China bond ETF base should surpass the size of our China equity ETFs that are already listed globally. We hope to achieve that in Singapore."

 

The market turnover value of SGX-listed ETFs was S$4.1 billion in FY2020 ended June, up 70 per cent on year. Total AUM for all SGX-listed ETFs amounted to S$5.8 billion as at end-June. SGX attributed the strong growth in its ETF market to the growing investor interest in yield-focused products such as fixed income and Reit ETFs, which make up 40 per cent of the ETF assets listed on SGX.

 

CSOP AM is an ETF leader in Asian market, known for its innovative and sizable ETF products in diverse categories. Its decision to open shop in Singapore was precipitated by a significant amount of private wealth flowing out of Hong Kong in the direction of the city state.

 

The move also hinged on the VCC structure, which the MAS introduced in a pilot phase at the start of last year, and has since rolled out to the whole market this year. The structure provides funds with greater flexibility to manage their business, including the ability to redeem shares without seeking shareholder approval and permitting investors to enter and exit their investments whenever they want to. As of July 31, 2020, CSOP has US$8.2 billion in AUM.