By David Macfarlane

The United SSE 50 China ETF is the first China A-Shares ETF listed on the Singapore Exchange and in Southeast Asia, offering access to China’s A-Shares equities market, which is currently only accessible to Chinese investors and Qualified Foreign Institutional Investors (QFII) approved by China Securities Regulatory Commission (CSRC).

“It is the only Singapore dollar denominated China A-Shares ETF listed,” says Chong Jiun Yeh, Executive Director, Head of Structured Investments, UOB Asset Management Ltd (UOBAM). “We think that this product is appealing to investors in Singapore and the Asia-Pacific region. The listing of the United SSE 50 China ETF in Singapore offers relatively longer trading hours than any other China A-Shares ETF currently listed globally, giving investors the opportunity to position their trade before and after the China markets open and close.”

UOBAM selected Rabobank, which has been rated the highest credit ratings by S&P and Moody’s since 1981, as its counterparty. The ETF will invest in a type of market access product known as participatory notes (P-Notes), which Rabobank will issue initially. Rabobank will also act as the market makers of the ETF on the exchange in Singapore.

The ETF will track the SSE 50 Index, which is a domestic Chinese equity index tracking the 50 largest stocks of good liquidity listed on the Shanghai Stock Exchange. “We believe that this index is very representative of the overall China growth story. This ETF gives investors access to a limited access market, enabling them to invest onshore in China,” says Mr. Chong.

Interest in China markets has always been very high; especially in Singapore’s exchange listed China-linked companies. “We believe that this ETF offers a good alternative to investors who are already investing in S-Chips,” says Mr. Chong, adding: “It should create a lot of interest amongst investors who can invest in A-Shares ETFs.”

Since being listed in late November, 2009, the average traded value and trading volume of the ETF in the month of December has been one of the top three amongst all the ETFs that are traded on the Singapore Exchange. In terms of tracking error risk, the ETF has been able to perform relatively well, even compared to its peers in Hong Kong. “In terms of the size of the ETF, we expect that it will continue to grow on the back of continuing interest in the China market from investors,” notes Mr. Chong. During the initial listing, the fund size was S$76.8 million (US$54.6 million).

Looking ahead, Mr. Chong says the firm has no plans to cross list the ETF in any other exchanges in the region. “Rather, we are working with some of our partners in the region to potentially set up some China A-Shares funds that could feed into this ETF in Singapore.”

Market outlook

“I think that ETFs will continue to be a growth segment of the asset management industry as a whole,” says Mr. Chong. He explained that ETFs achieved an all time high, exceeding US$1 trillion at the end of 2009 globally. “ETFs are likely to grow another 20% this year, as more and more investors, not just retail but also institutional, are using ETFs as an investment tool.”

As well as being an ETF manager, UOBAM is also building a platform which will allow it to roll out products that utilise dynamic asset allocation to invest in ETFs. “This platform, which uses ETFs as the underlyings, will allow investors to achieve absolute return targets via alpha from dynamic asset allocation and the necessary risk controls, whilst investing in passive beta,” Mr. Chong continues.

Also, given the growth in the industry, UOBAM is building up its capabilities in analysing the ETF universe both regionally and globally in order to provide expertise for screening and selecting the right ETFs. “In the near future, we are looking at rolling out some thematic-based ETFs across the region – we are planning to introduce about two a year,” Mr. Chong added.