CSOP AM ETF aims to profit from shift away from China factories

CSOP Asset Management is gearing up to launch what it claims will be Singapore’s first exchange traded fund focusing on the technology industry across south-east Asia and India.

The fund firm is aiming to raise up to $30mn by June 20, when the ETF will officially list on the Singapore bourse, with a longer-term goal of hitting $100mn in assets within the first year.

The CSOP iEdge Southeast Asia+ TECH Index ETF will be listed on the Singapore Stock Exchange on June 20. The fund will track the iEdge Southeast Asia+ TECH Index, which provides exposure to 30 tech firms across six south-east Asian markets and India across information technology, software, retail, car manufacturing, and electronic components and manufacturing.

Just under 28 per cent of the portfolio is in electronics components and manufacturing, followed by a 19 per cent allocation to software and consulting companies and 16 per cent to miscellaneous retail.

US-listed companies with origins in south-east Asia and India make up the largest portion by market with a weighting of 43 per cent, followed by 18 per cent for Thailand, 15 per cent for Indonesia, 12 per cent for Singapore and 11 per cent for Malaysia.

Wang Yi, Hong Kong-based head of quantitative investment at CSOP AM, said a key factor behind the creation of the ETF was growing client demand for allocations to south-east Asia.

The challenge for investors in accessing the region is the fact that it is “a little fragmented” and there is no “aggregate portfolio they can easily access”, Wang argued.

The ETF invests in both locally listed companies, as well as the US stocks of local companies via American depositary receipts, which is how the ETF gets exposure to Indian companies, he explained.

The Hong Kong-based asset manager, which entered the Singapore market in 2019, believes the local tech sector is set to benefit from a combination of strong regional economic growth, a growing middle class, and a shift in industrial manufacturing capabilities away from China and into south-east and south Asia.

Exports from south-east Asia rose from $474bn in 2003 to $1.713tn in 2021, the firm noted, citing research from the Observatory of Economic Complexity, with much of this growth coming from the tech sector.

The firm said that south-east Asia was also expected to have 140mn new consumers by 2030, with the middle-classes expected to account for just under 70 per cent of the total regional population in the same period, citing World Economic Forum data.

The digital economy sector in the region grew at a compound annual growth rate of 24 per cent between 2019 and 2022 as well, with India seeing a compound annual growth rate of 16 per cent in the same period, according to research from Google, Temasek and Bain & Company.

The region should also benefit from what the firm refers to as the “fifth round of industrial relocation”, where manufacturing capabilities are now shifting from China to south-east Asia, after earlier shifts from the UK to the US, the US to Japan, Japan to the so-called four tigers of Hong Kong, Singapore, Taiwan and South Korea, and from the four tigers to China.

As more manufacturing and industrial facilities relocate to the region, CSOP AM anticipates income to grow, leading to more growth opportunities for regional tech companies and service providers, who should benefit as local consumers spend more on tech and tech services such as ride-sharing applications, Wang said.

Locally listed ETF assets in Singapore shrunk slightly in the first four months of this year, however, falling from $8.17bn at the end of 2022 to $8.03bn by the end of April, according to Singapore Exchange data — far below the $9.19bn figure at the end of 2021.

This latest ETF could also potentially be on the table to be cross-listed into the Chinese market via the recently announced ETF scheme between the Singapore Exchange and Shanghai Stock Exchange, Wang said.

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