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Thursday, July 19, 2018, 15:37
CSOP launches debut HK-dollar money market fund
By Evelyn Yu
Thursday, July 19, 2018, 15:37 By Evelyn Yu

This photo shows a view of the skyline of the Central district in Hong Kong on June 27, 2017. CSOP Asset Management launched its first Hong Kong dollar-denominated money market fund (MMF) exchange-traded fund on July 18, 2018, as financial market volatility rekindles investor interest in liquid cash-management tools that deliver stable returns. (ANTHONY WALLACE / AFP)

Hong Kong launched its first Hong Kong dollar-denominated money market fund (MMF) exchange-traded fund on Wednesday as financial market volatility rekindles investor interest in liquid cash-management tools that deliver stable returns. 

CSOP Asset Management, a Hong Kong-based subsidiary of one of the Chinese mainland’s largest fund managers, China Southern Asset Management, launched the CSOP Hong Kong Dollar Money Market ETF this week to capitalize on increased demand for safe-haven assets as equity and bond markets show poor performance. The fund also fills a gap in the city’s MMF industry, which has for years lagged other centers’ in terms of size and range of products on offer.

The CSOP Hong Kong Dollar Money Market ETF was launched this week to capitalize on increased demand for safe-haven assets as equity and bond markets show poor performance

“We find it a very good timing to launch such a money-market fund ETF,” said Zhang Yanjun, CSOP senior portfolio manager. “In the wake of the 2008 financial crisis, the city’s interest rates have been hovering at a very low level and only rebounded following United States rate increases since 2016; the three-month Hong Kong Interbank Offered Rate has stabilized on a level above 2 percent this year and it makes MMF instruments much more attractive.”

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The ETF, with a lot cost of HK$1 million, set three-month Hibor as a reference point and aims to reach an annual return of 1.8 percent before commission and fees, and 1.5 percent yield excluding costs. 

The fund will put all, or substantially all, assets into Hong Kong dollar-dominated short-term deposits, debt securities and other money market instruments, the fund house said.

The ETF has drawn investment of about one billion yuan (US$149 million) in the primary market from a variety of institutional investors ranging from banks, insurance companies and corporates, according to Melody He Xian, managing director and head of sales and product strategy at CSOP. The fund also concluded transactions that amount to more than HK$42 million on the secondary market on its debut day on the Hong Kong Stock Exchange, according to figures from Bloomberg.

“That’s a big number for an ETF on its debut day, even for the likes of CSOP A50 ETF and the Tracker Fund of Hong Kong, which are most popular among investors, we are talking about around HK$300 million for their average daily turnover,” said He.

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The warm response from the market showed the dire need for MMF products in the Hong Kong market, which lags the United States and mainland markets.

At the end of last year, assets under management of global MMFs reached US$5.9 trillion, or 12 percent of worldwide regulated open-ended funds. Developed markets such as the US and European Union take up most of the MMF share, but 18.5 percent of global MMFs are managed on the mainland, according to a CSOP report.

Thanks to the launch of Ant Financial’s internet finance product Yu’ebao in 2013, mainland MMFs have grown in leaps and bounds as the fintech lets mainland citizens buy a lineup of MMFs in Alipay with an investment threshold as low as a few hundred yuan.

In the second quarter, mainland MMF AUM had reached US$1.3 trillion. Beijing-headquartered Tianhong Asset Management, the fund manager of Yu’ebao, alone had 850.5 billion yuan in AUM as of June 30, 2016, according to its website, making it the biggest MMF in the world. 

In Hong Kong, there are just 45 registered MMFs with AUM close to HK$137.9 billion, among which more than 65 percent are US-denominated funds while HKD-denominated MMF accounted for just more than 16 percent.

Low returns are the primary reason for the lack of interest in MMFs in Hong Kong. High transaction fees also make MMFs in Hong Kong less attractive, Zhang reflected. 

Zero levies, no trading commission and no other costs for investors to trade the 28-listed MMFs in the mainland attributed to the growing popularity of MMFs among retail investors. In Hong Kong, the Securities and Futures Commission, Hong Kong Stock Exchange and brokerages need to charge certain fees in the buying and selling of listed MMFs. The charges, though a minuscule percentage, could easily eat into the small margins of MMFs. 

COSP said they were actively holding talks with regulators as well as brokers to decrease or waive such fees.

As Hibor is expected to continue to move higher amid a volatile environment, Chen thinks there is still strong potential for MMFs in Hong Kong.

The asset manager plans to issue more MMF ETFs denominated in other currencies in future, and seeks to lower the threshold of minimum investment to attract more retail investors.

CSOP asset management boasted AUM of US$4.5 billion as at the end of last month.

evelyn@chinadailyhk.com

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