So far only Swap-based ETFs on Chinese A-Shares are available in Europe, from db X-trackers and Credit Suisse. These Swap-based ETFs do not invest into the A-Shares but mimic the performance of the underlying A-Shares-index with a basket made of conventional indices plus a performance swap. The latter determines the quality of the tracking and depends on the power of the investment bank behind the guarantee.
„We have recently evaluated how Chinese ETF Managers can enter the European market“
Even iShares is using a Swap in its A-Shares tracker in Hong-Kong. A physical ETF which invests into Chinese A-Shares is currently not available outside the ETF-market in Hong Kong. European investors either need to invest into the product listed in HK which is not tax transparent in Europe or use one of the Swap-ETFs.
We have also checked the possibilities to transfer the quota for A-Shares into a product domiciled in Europe.
Strategic options include:
- Build up complete new infrastructure including Luxembourg Sicav and set up the ETF as physical European product
- Make use of available white label solutions
- Launch European Swap-ETF with tailored risk management process
- Cross list HK-ETf (not feasible due to regulations)
- Build joint-venture between European provider and Chinese Asset Manager
- Look for acqusition target to buy a European ETF provider
- Build Master-Feeder construction with indexfund or ETF that invests into a HK-indexfund using QFII
- Use collateralized ETN as a proxy that in invests into HK-ETF which uses quota
- Use off-exchange structured notes or special funds that invest into HK-ETF
All options have been analysed carefully on behalf of the client and have been summarised in a decision paper.
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