Deutsche Bank Closes 16 ETFs in Hong Kong After Demand SlumpBy
Boom in $4.5 trillion ETF market has mostly skipped Hong Kong
Investors cashing out even as Hong Kong stocks hit 2-year high
The 16 Deutsche Bank X-trackers ETFs ceased trading on Wednesday, according to a Hong Kong exchange filing. Most of the funds have assets of less than $40 million.
The closures highlight the challenge of operating ETFs in markets where investors have yet to be persuaded by their allure. While the $4.5 trillion global ETF market is setting new asset records almost every month, Hong Kong is bucking the trend -- investors have pulled money from ETFs this year even as equity prices in the former British colony climb to a two-year high.
“Deutsche Bank was one of the early adopters of ETFs in Europe, but Hong Kong is at a slower stage of development and client needs are different here,” said Melody He, head of ETF and index solutions at CSOP Asset Management Ltd. “Distributing ETFs is harder in Asia and they may not have seen enough demand.”
Money flowing into U.S. equity ETFs increased by 7.5 percent or $177.6 billion this year, according to data compiled by Bloomberg. In Hong Kong, assets dwindled by 6.6 percent, or $2.3 billion, the data show.
Hong Kong’s ETF market is hampered by factors including use of a commission-based fee model where banks or other distributors receive higher fees for selling active funds rather than ETFs, said Chris Pigott, head of Hong Kong ETF services at Brown Brothers Harriman & Co.
The ETF closures include 10 funds on China’s CSI300 Index covering sectors including banks, health care, financials and energy. BlackRock has been shutting down funds in Hong Kong, most recently earlier this year. Six of those had also tracked sectors on the CSI300 index. BlackRock, the world’s largest money manager, and Deutsche Bank still operate ETFs in Hong Kong.
“Most ETFs in Hong Kong are Greater China-based and a handful of those are already successful,” said Pigott. “It’s tough to differentiate so I could see why they may want to clean up some of those products.”
Karene Dufour, a spokeswoman for Deutsche Bank in Hong Kong, declined to comment.