China Construction Bank International and Commerzbank together listed the first renminbi-denominated exchange traded fund on the London Stock Exchange on Wednesday, marking a milestone that will help develop the renminbi asset management industry in the United Kingdom.
The new ETF, called the CCBI RQFII Money Market UCITS ETF, will give European and other international investors access to the China Interbank Bond Market securities, which is otherwise not available due to China's capital account controls.
UCITS stands for Undertakings for Collective Investments in Transferable Securities. It provides a single European regulatory framework for an investment vehicle, which means it is possible to market the vehicle across the European Union without worrying which country it is domiciled in.
RQFII is the Renminbi Qualified Foreign Institutional Investor program, which allows select Chinese financial firms to establish renminbi-denominated funds in international markets for investment in the mainland.
Tony Hung, executive director of portfolio management at CCBI, said that the move is an important step in CCBI's journey to engage with international financial markets and to offer products and financing capacity that connects the Chinese economy with the global economy.
Hung said the ETF will yield around 3-3.5 percent annual return, which is significantly higher than many other investment opportunities available to European investors. The first tranche of the ETF has a size of 1 billion yuan ($161 million), and Hung said his team is looking forward to issuing more tranches at a future date. The ETF is settled in three currencies, the renminbi, sterling and the euro.
Pietro Poletto, head of fixed income and ETF markets at London Stock Exchange Group, said this ETF will be very valuable to the exchange and highly attractive to investors. "This ETF is a first of its kind, and it could encourage more renminbi-denominated ETFs to be listed on the London Stock Exchange in the future," he said.
There are four RQFII ETFs listed on the London Stock Exchange and since the first London listing in January 2014, RQFII ETFs have traded over 1.5 billion pounds ($2.23 billion) in value.
Although these funds all access China's financial market opportunities under the UCITS routes, none of them are denominated in the renminbi, due to commercial decisions to denominate them in other currencies, Poletto said.
HSBC is the custodian bank and asset services provider for the ETF. Its services include global custody, China sub-custody and clearing, UK depository, fund administration and transfer agency.
Andrea Leadsom, a member of the Parliament and the economic secretary to the UK Treasury, welcomed the listing of the ETF and said that it is an important milestone in London's efforts to develop its renminbi market.
