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The decision by the Hong Kong Stock Exchange to stimulate investor interest by removing fees on exchange-traded and fixed-income funds is unlikely to have an immediate impact, according to industry participants.

Hong Kong Exchanges and Clearing has decided to waive trading tariffs and minimum stock settlement fees from May 31 in a bid to “improve its ETF market structure and provide liquidity to listed ETFs in Hong Kong, “said Brian Roberts, head of exchange traded products at HKEX.

Roberts added that the policy came “at an opportune time” in light of the “sharp increase in investor demand for Chinese fixed income products.”

The Hong Kong bond ETF and money market is a relatively small part of the local ETF industry and has struggled to achieve significant growth.

This article has already been published by Ignite Asia, a share held by the FT group.

In April, the 16 bond and money market ETFs listed in Hong Kong had a market capitalization of HK $ 45 billion ($ 5.8 billion), accounting for 11.2 percent of the ETF market, and had only 0.2 percent of the total market share in terms of turnover average daily business.

As of April 2019, the ten local fixed income and money market ETFs had a market capitalization of HK $ 35 billion, representing 10.3% of the market and a market share of 0.1% in terms of turnover. .

By comparison, some of the fastest growing ETF sectors, including the Hong Kong Equity ETF, have recently experienced substantial growth. Its average daily trading volume increased from 27% of the total ETF market share in April 2019 to 66.6% in April.

“Investor appetite has been limited to a few products so far, due to the fact that most fixed income ETFs are expensive and lack liquidity compared to mutual funds and US range products,” said declared BlackRock. The US manager has not listed any fixed income or money market ETFs on the local stock exchange.

HKEX has identified 29 bond and money market ETFs eligible for fee waivers. If an ETF is available in multiple currencies, the exchange counts it as one product.

Among them, Premia Partners has nine eligible products. It is followed by CSOP Asset Management, which has eight products. Of the 29 products, 15 focus on Chinese fixed income.

Melody He, head of business development, product strategy and solutions for Hong Kong-based CSOP AM, admitted that the company was unlikely to experience an instant increase in flows of the new HKEX policy.

“ETF is more [the] ecosystem, so a single change is unlikely to see flows instantly, ”he said.

But she added that the policy has helped attract long-term flows from more individuals and high net worth individuals.

CSOP AM’s four China-focused bond and money funds aggregated HK $ 5.7 billion in assets under management, accounting for about 13% of the Hong Kong fixed-income ETF and currency market, according to the company.

He said he plans to launch more fixed income products and will not just focus on the Chinese market.

Rebecca Chua, founder of Hong Kong-based Premia Partners, said the fee waiver “may not seem very large in absolute dollar terms,” ​​but added that it translates into “direct savings for investors. and market makers “.

“In the low interest rate environment, any cost savings would become even more relevant,” she said.

Premia Partners has launched two ETFs on Chinese bonds. The Premia China USD Property Bond ETF, which was launched in April with assets under management of approximately HK $ 85 million at the end of May, and the Premia China Treasury and Policy Bank Bond Long ETF Duration, which had AUM of HK $ 738 million.

The low yield environment and other competing products that might offer higher yields are also hurdles for ETF issuers that attract the attention of investors.

“Given the dynamism [initial public offering] and equity and warrants markets, fixed income ETFs have indeed occupied a much smaller share of minds and portfolios, ”said Chua of Premia Partners.

Another obstacle to the effectiveness of the fee waiver measure is the fact that investors still have to pay other fees, such as brokerage commissions.

A Hong Kong-based ETF veteran said that while the new rules were generally a “good move” for the Hong Kong ETF market, institutional investors with fixed income mandates in Asia “aren’t so comfortable ”using ETFs.

It could be difficult for fixed income teams to study and use ETFs, which are “similar in nature to stocks”, especially for relatively small institutional investors, the veteran added.

Jackie Choy, head of ETF research for Asia at Hong Kong-based Morningstar, said that while a stand-alone policy might not be a “big thing” for the market, it could reduce “friction” for investors. investors and could therefore encourage them to use the products and help improve the liquidity of the products.

* Ignites Asia is a news service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at ignitesasia.com.

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