China’s CSI 2000 ETFs fail to make expected splash with investors

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Initial asset raising for the first eight Chinese exchange traded funds tracking the newly launched CSI 2000 index has failed to live up to the hype that accompanied the launch of the index.

Authorities had hoped the index would reignite interest in domestic equities, but the eight ETFs raised an average of Rmb574mn ($78.5mn) each during their initial public offering period at the beginning of September, less than the Rmb668mn average achieved by all ETFs launched between September 1 and September 24.

China Universal Asset Management’s CSI 2000 ETF raised the most assets during its fundraising period with Rmb1.2bn, followed by E Fund’s ETF with Rmb812mn, according to Wind data.

Guotai Asset Management, Huatai-PineBridge Fund Management and Harvest Fund Management saw their ETFs pull in Rmb600mn, Rmb589mn and Rmb491mn, respectively, while GF Fund Management, China Asset Management and China Southern Fund Management’s CSI 2000 ETFs all closed with around Rmb300mn.

Of the two remaining ETFs that had yet to complete their fundraising, Fullgoal Asset Management kicked off its IPO period on September 18, while Harvest Fund Management had yet to start its fundraising.

The eight ETFs were part of a group of 10 such strategies approved by the China Securities Regulatory Commission in late August designed to replicate the CSI 2000 index, which was launched earlier that month to track the performance of smaller market-cap securities.

The CSRC’s decision to approve the 10 ETFs in a single day, in addition to another seven ETFs designed to follow two similar indices, is believed to be part of a broader effort by Chinese authorities to stimulate more stock trading and encourage more investment in the A-share market.

Among the existing main Chinese indices, including the CSI 300 Index, CSI 500 Index and CSI 1000 Index, China’s small and microcap stocks are largely excluded, with industry experts hoping that the newest index will provide investors with new passive investment options and diversification benefits.

Since launching on August 13, the index has dropped 3 per cent as of September 22. Daily trading volume has been about Rmb200bn.

The aim of the new index in encouraging more investor participation in the onshore equities market has been “more of a good wish” than actual reality so far, according to a Shanghai-based funds analyst.

“The size of the ETFs established is too small compared with the amount of capital flowing out, so the impact to the whole market is very limited,” said the analyst, who declined to be quoted by name.

Overseas investors sold about $11bn in mainland Chinese stocks in the 13 days to August 23.

To reinvigorate investor confidence in the mainland market, China’s securities regulator reportedly met some of the world’s largest asset managers earlier in September to discuss the massive sell-off of Chinese stocks in the onshore market by foreign funds in August.

The eight ETFs raised a total of Rmb4.6bn from the market, accounting for just under a quarter of the Rmb19.8bn raised by the 62 equity and mixed-asset funds that have been launched in September so far.

“The IPOs of the CSI 2000 ETFs are not considered very impressive if you compare it with CSI 1000 ETFs, as some of them raised more than Rmb6bn in IPO,” said the analyst.

“Last year the market was dropping, but it was still active, but this year the whole market is quiet,” the analyst added.

*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.