Saturday, October 31

UOB Xinhua China A50 ETF

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UOB has launched the UOB Xinhua China A50 ETF recently. This ETF will track FTSE Xinhua/China A50 index and this index is designed to track the top 50 China A-shares companies by their market capitalization. A-shares are stocks of China companies which are listed in the Shenzhen or Shanghai stock exchange and these shares are listed and denominated in Chinese Yuan. These A-shares can only be owned by Chinese Nationals or Qualifed Foreign Insituitional Investors (QFII) as approved by the China Securities Regulatory Commission (CSRC)

The prospectus of this ETF can be downloaded here. Personally, I have taken a look at the prospectus and I do think that UOB has done a good job in explaining how this ETF works although it is still quite complex. I have taken snapshots of the important information of this prospectus.




After reading through some parts of the prospectus, I feel that the model of this ETF is rather complex. For a start, one is not holding directly to the A-shares of the China companies in the index but is actually holding on to the participatory notes known as P-notes, which is a synthetic representation of the A-shares. These P-notes have some terms and conditions which I am not too comfortable with and these are listed further in the prospectus which you can read about. Besides, both tranches of P-notes are essentially issued by Rabobank and this brings up the issue of counterparty risk.

8comments

  1. AnonymousOctober 31, 2009 at 11:05 PM

    Do you think it is worth to invest in medium and long term?

    ReplyDelete
  2. KayNovember 1, 2009 at 1:11 PM

    Hi,

    In my opinion, I will not invest in this ETF. Of course, this ETF may prove to be very profitable but I'm more concerned with the risk and the complexity of this ETF. Personally, I will only buy ETFs that invest directly into the consituent stocks of the index it is supposed to track.

    Kay

    ReplyDelete
  3. UnknownNovember 2, 2009 at 12:08 AM

    Hi Kay,

    just wondering if any STI ETF is good for investing and any ETF in SG that tracks oversea market like what you mention that will invest directly in the stocks of the index that it is suppose to track? :)

    thanks in advance...

    ReplyDelete
  4. KayNovember 2, 2009 at 9:07 PM

    Hi Sue,

    If you are referring whether the ETFs are cash-based, both the DBS STI ETF 100 and the STI ETF are cash-based. As for the other ETFs that are listed on SGX, I will be posting an article on this soon.

    Kay

    ReplyDelete
  5. AnonymousNovember 6, 2009 at 10:44 AM

    Hi Kay

    Are there any cash-based ETFs for the Chinese market then? Seems like all the ETFs for China trading on SGX are swap-based?

    Thanks.

    Josh.

    ReplyDelete
  6. KayNovember 7, 2009 at 11:26 PM

    Hi Josh,

    To my knowledge, all the ETFs that are focused on China markets are not cash-based.

    Kay

    ReplyDelete
  7. JoshNovember 9, 2009 at 9:27 PM

    Hi Kay

    Thanks. Perhaps I should look at unit trusts for the China market then.

    Josh

    ReplyDelete
  8. KayNovember 10, 2009 at 8:56 PM

    Hi Josh,

    There is no easy way out for this as the expense and sale charges for unit trusts is relatively higher compared to ETFs.

    Kay

    ReplyDelete

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