Fund houses in both the US and China are gearing up to debut ETFs tracking the recently launched SSE STAR 50 Index.
China’s SSE Star Market has been designed to emulate NASDAQ.
The SSE STAR 50 – technically the SSE Science and Technology Innovation Board 50 Index, to give it its full name – was unveiled in July 2020 and has engendered significant investor enthusiasm.
The index measures the performance of the 50 largest Chinese Mainland-listed stocks trading on the SSE Star Market that also pass certain liquidity requirements.
In the United States, China specialist KraneShares is currently awaiting approval from the SEC for the KraneShares SSE STAR Market 50 Index ETF (KSTR US). According to a regulatory filing, the ETF would list on NYSE Arca and come with an expense ratio of 0.99%.
Meanwhile, in China, at least three asset managers – China Asset Management Company, E Fund Management, and Huatai-PineBridge Fund Management – are known to be jostling to be first to market. All three are understood to have received approval from the China Securities Regulatory Commission for the listing of ETFs tied to the index.
Index constituents are weighted by float-adjusted market capitalization subject to a cap of 10% on the largest stock and 40% on the aggregate weight of the largest five stocks. The index includes many traditional technology companies such as chipmakers and software designers but also provides exposure to leading biotech firms, advanced equipment manufacturers, and innovative chemical producers, among others.
The information technology sector accounts for over half (56.4%) of the index weight, as of 14 September, with the next largest exposures being health care (23.8%), industrials (8.1%), and materials (6.2%). The largest constituents are Beijing Kingsoft Office Software (10.4%), Micro-Tech Nanjing (4.9%), Advanced Micro-Fabrication Equipment (4.9%), Shenzhen Transsion (4.8%), and Railway Signal & Communication (4.7%).
The index has gained 34.8% year-to-date, significantly higher than other Chinese A-share benchmarks such as the large-cap CSI 300, which has risen by 13.5%.
Tech homecoming
The SSE Star Market debuted in July 2019 and is effectively a Nasdaq-style board of the Shanghai Stock Exchange. The market aims to entice firms from high-tech and other growth and strategically important sectors for initial public offerings by reducing much of the bureaucratic red tape associated with traditional main-board listings.
Up to now, many Chinese tech companies have opted to IPO in the US to increase their credibility and transparency. However, with US-China relations deteriorating in recent years, China has been experiencing something of a tech “homecoming” as firms seek to avoid the risk of potential future US interference.
The recent success of Chinese tech stocks, as well as the strategic importance of the sector to China’s future economic growth, has generated much investor fervour.
This has similarly been reflected in the popularity of ETFs providing exposure to the recently developed Hang Seng TECH Index. Four asset managers – CSOP Asset Management, China Asset Management Company, Hang Seng Investment Management, and BlackRock – have introduced ETFs linked to this index within the past three weeks with collective assets under management fast approaching the USD1 billion mark.