ChinaAMC launches Hang Seng TECH Index ETF

Sep 3rd, 2020 | By | Category: Equities

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China Asset Management Company (ChinaAMC) has launched a new ETF in Hong Kong providing exposure to locally listed Chinese technology stocks through the much-hyped Hang Seng TECH Index.

ChinaAMC launches Hang Seng TECH Index ETF

ChinaAMC has become the second issuer to launch a Hang Seng TECH Index ETF.

The ChinaAMC Hang Seng TECH Index ETF has listed on the Stock Exchange of Hong Kong and is available to trade in Hong Kong dollars (3088 HK) and US dollars (9088 HK).

The launch comes less than a week after CSOP Asset Management introduced the first ETF to track the index.

The CSOP Hang Seng TECH Index ETF (3033 HK) broke the exchange’s record for the highest turnover on an ETF’s listing day, registering over HK$3 billion in flows. Assets under management in the fund currently stand at HK$3.3bn (approx. $430 million).

CSOP’s instant success highlights how investors are eager to access the booming Chinese technology sector which, in line with tech stocks globally, have soared during the Covid-19 pandemic – the Hang Seng TECH Index is up 67.7% year-to-date (data as of 1 September) compared to a -10.8% loss for the broader Hang Seng Index over the same period.

China’s emergence as a technology powerhouse has also prompted a fierce rivalry with the US which has progressively sought to restrict Chinese tech firms, citing trade competitiveness and security fears. Consequently, Chinese technology companies are increasingly choosing to list closer to home, raising the profile and importance of tech-oriented funds focused on Hong Kong and China.

Index methodology

The index consists of Greater China-incorporated stocks that specifically have high business exposure to the internet, fintech, cloud computing, e-commerce and digital technology themes. Companies must also be “technology-enabled” (i.e. operate primarily on an internet or mobile platform) or have an R&D expenses-to-revenue ratio that is greater than or equal to 5%, or revenue growth that is greater than or equal to 10%.

The 30 largest stocks as ranked by market capitalization that meet these criteria are selected to form the index. Constituents are weighted by free-float market capitalization, subject to a cap of 8% on any individual stock.

Major positions currently include well-known Chinese names such as Xiaomi (11.6%), Meituan Dianping (10.3%), Alibaba (9.0%), Tencent (7.8%), Sunny Optical (6.4%), JD.com (5.8%). Other familiar holdings include Lenovo, NetEase, and Ping An Healthcare & Technology.

Companies formally assigned to the Information Technology sector contribute 47.0% of the holdings, followed by Consumer Discretionary with 29.4%, Communication Services with 13.3%, Health Care with 7.8%, and Financials with 2.1%.

With an eye on upcoming tech IPOs, the index includes a ‘Fast Entry Rule’ within its methodology to facilitate fast-tracked inclusion for qualified potential members. This provision is likely to ensure speedy inclusion for fintech giant Ant Financial, which is gearing up to float in Hong Kong.

Embracing technology

The ETF has ongoing charges estimated by ChinaAMC to be 0.60% of which 0.40% is the management fee. This is substantially cheaper than the CSOP ETF which comes with estimated ongoing charges of 1.49%.

Further competition is in the pipeline. Hang Seng Investment Management is reportedly in the final stages of launching a Hang Seng TECH Index ETF in Hong Kong with its Hang Seng TECH Index ETF (3032 HK) expected to have a 0.55% management fee and estimated ongoing charges of 0.87%.

Meanwhile, in China, five separate asset managers have licensed the Hang Seng TECH Index with a view to launching ETFs in the near future, according to regulatory filings. Investor demand is expected to be equally robust on the mainland – the ETFs would provide investors with access to tech titan Alibaba which is not yet available through trading links with Hong Kong.

Commenting on the launch, Dr Frank Xiaoling Zhang, Chief Executive Officer of ChinaAMC (HK) said, “We embrace the technology theme and have been integrating technology into our investment competencies. We listed our first pair of US-tech leveraged and inverse products back in 2016, and also launched a private fund with pioneering artificial intelligent investment strategy last year. We believe the Hang Seng TECH index would become one of the most important technology flagship indexes.”

Ms Anita Mo, Deputy CEO of Hang Seng Indexes Company, added, “Under the prevailing trend of technology development, new economy stocks have started to become the focus of the market. We launched our Hang Seng TECH Index with the aims to reflect the performance of sizeable companies in this sector, and to facilitate the development of various index-linked ETF and other related products. We are pleased to see the launch of the Hang Seng TECH Index ETF which will provide more investment channels in technology theme to investors.”

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