The hunger for investing in the internet that spawned the creation of 47 retail structured products in China in 2013 that were linked to related stocks has culminated in the launch of a new index by CSOP Asset Management and MSCI, according to SRP data. Structured product issuance based on stocks such as Alibaba, Baidu, Facebook and Tencent was 20% higher than in 2013.
Structured products linked to internet stocks that were sold in China in 2014 were issued by Citi (11 products), DBS Bank (10), Bank of East Asia (9), HSBC (9), Shenzhen Ping An Bank (3), United Overseas Bank (3) and China Merchants (2) . The majority of payoffs were knock outs, and accruals, range accrual notes and shark fins.
CSOP, the biggest foreign investment quota holder in China, has partnered with the index provider to roll out the MSCI China and US Internet Top 50 Equal Weighted Index that includes the top 50 internet companies’ shares listed on both US and Hong Kong stock exchanges.
Conversations with banks are still in their initial stages, as it takes time to observe the track record of the index and to judge its performance, said Melody He, vice-president at Hong Kong-based CSOP. “A number of global private banks have already contacted us about cooperation in terms of structured products and warrants, even though both the index and its corresponding ETF were only launched last week,” said He. “They are interested in the index as it tracks performance of a basket of internet companies’ shares instead of a single share, which provides a more diversified underlying for investment.”
The index includes the 50 internet companies with the largest total market capitalisation in China and the US, including Internet giants such as Google, Alibaba, Facebook, Amazon and Tencent.
The CSOP MSCI China & USA Internet 50 ETF, which was listed on January 28 and is based on the new index, is also attracting as a weathervane for the US stockmarket, said He. “This ETF can be traded after the US market closes, thus if any event happens in the world that would affect stockmarket, the change will be reflected on the performance of the ETF.”
The entry level of the ETF is HKD1000 ($129), which grants local retail investors access to US stockmarket at much a lower cost, said He. The index is total net return, which means that the performance of its constituents is calculated on the basis that any dividends or distributions are reinvested after withholding tax deduction, according to the ETF documentation. The underlying index is denominated and quoted in US dollar.
CSOP chose MSCI as index provider for the ETF because of its broad coverage of globally-recognised Internet companies, which play an important role in defining the future of the world economy, according to Jack Wang, deputy chief marketing officer of CSOP Asset Management.
Related stories:
CSAM and CAMC debut Shanghai-Hong Kong stock connect ETFs
HK prepares ETF stamp duty amendment for Legco