A proactive Malaysian government has helped draw Hong Kongese ETF providers onto its exchange
Hong Kong-based asset manager Value Partners Group is planning to roll out its first ETF in Malaysia in 2019, boosted by the incentives launched by the country’s financial authorities on the local ETF market.
Malaysia’s capital market has a relatively short history in ETF investing compared to regional counterparts like Hong Kong and Japan at which the first Malaysia ETF, ABF Malaysia Bond Index Fund, was listed on Bursa Malaysia in July 2015.
In addition to the latest TradePlus S&P New China Tracker launched by domestic asset manager Affin Hwang Asset Management in January 2019, there are only 12 ETFs listed on the Malaysian stock exchange with around US$500 million of total AUM currently.
Despite the small market capacity, David Quah, managing director of quantitative investment solutions at Value Partners, says the country’s ETF market base will deliver opportunities for newcomers with its growth potential.
More importantly, Bursa Malaysia and the country’s financial regulator Securities Commission Malaysia unveiled some new measures last year to strengthen ETF product’s transparency and infrastructure in order to draw more ETF managers into the market.
For example, Bursa Malaysia enhances the contents of ETF interim and annual reports arising from the new types of ETF products and their specific requirements to promote meaningful and value-add information to unit holders.
Other initiatives include exemption of ETF listing fees and the permission of the launch of alternative ETFs such as synthetics ETFs, commodity ETFs, and inverse and leveraged ETFs, which are expected to be conducive for ETF trading activities.
Some overseas players such as South Korea’s Samsung Asset Management and Taiwan’s Yuanta have shown interest in the market and they’re teaming up with domestic ETF managers to launch local products.
Value Partners plans to roll out its first overseas ETF in Malaysia mid-to-late this year as its cost benefit analysis indicates that it is cost efficiency to list ETF in the country, says Mr Quah.
The launch will come almost a year after Value Partners opened its office in Kuala Lumpur in October 2018.
As for Hong Kong, Value Partners delved in the ETF market in the city snice 2009 with the launch of its first passive product, Value China ETF.
However, its overall ETF business growth was sluggish last year primarily due to the increasingly volatile stock markets in China and Hong Kong. Total AUM of its existing six ETFs remained flat at about US$150 million through 2018.
Mr Quah emphasises the company will place its focus on innovative products going forward.
“The company is considering launch some first-of-its-kind ETFs in Hong Kong particularly as the city’s financial regulator has given the green light for actively managed ETFs and unlisted share class ETFs,” he adds.
Hong Kong’s Securities and Futures Commission (SFC) sought market opinions on the amendments to the Unit Trust Code, which include actively managed and unlisted share class ETFs, late last year.
The regulatory watchdog is expected to issue detailed guidelines on the funds later this year.
Unlisted share class ETFs are index funds that are not publicly traded on stock exchange and are only accessible through distributors.
Mr Quah believes that the availability of the actively managed ETFs and unlisted share class ETFs will help broaden product distribution channels, and allow investors implement active strategies and to distribute more effectively.
Although the active and unlisted share class ETF products are still a relatively new concept in Hong Kong, the regulatory loosening may attract existing and new ETF providers to launch such products in order to take the first-mover advantage, he says
Value Partners is still awaiting for the product guidelines and studying the feasibility. It expects to finalise the details of the underlying themes for its new products within the first half this year, Mr. Quah says.
Value Partners had total assets under management of US$15 billion at the end of 2018.