HKEx introduces renminbi ETFs

Hong Kong Exchanges and Clearing Ltd has launched the city's first deliverable renminbi or yuan currency futures contract based on the renminbi and the US dollar exchange rate.

The futures will be traded on the stock exchange and will become a new offshore risk management tool for hedging renminbi currency risk.

HKEx Trading Division Head Calvin Tai said the product should prove useful to mainland institutions, qualified foreign institutional investor (QFII) fund managers and mainland and overseas companies involved in cross-border trade settlements, and foreign institutions that want to make direct investments in China.

Renminbi-denominated exchange-traded fund (ETF) trading debuted successfully and received favorable market response in Hong Kong when the China Securities Regulatory Commission launched it in April 2012. The regulator approved the use of the RQFII investment quota of US$7.9 billion for qualified mainland fund management houses and brokerage firms to issue renminbi-denominated exchange traded funds (ETFs) tracking A-share indices. There are now four renminbi-denominated ETFs listed locally with US$1.7 billion in assets under management.

While ETF investments in the A-share market were attractive to aggressive investors who perceive A-shares to be undervalued after the recent downturns, other RQFII investment funds drew weak market response.

Hong Kong’s Securities and Futures Commission has authorized 19 RQFII funds provided by 21 mainland brokerage firms to deal with these products. Only some US$1.6 billion has been raised since these products were launched in January or about half the allocated quota. Investments are restricted to a mix of 80% in bonds and 20% in equities on the mainland.

Analysts believe the tepid take-up might be due to the distributors’ limited marketing channels and because RQFII investment funds may only yield the same return levels as renminbi deposit rates after deducting investment charges.