Myth 2: “Liquidity for RQFII ETFs is low” So while the RQFII ETFs have been trading at a premium, on average, since their initial listing, it has been nowhere near as lofty as that seen by their most popular predecessor. As a result, we advise investors to exercise caution and monitor premium/discount levels before executing a trade. In addition, investors should also note that because the Chinese markets closes at 3pm and the Hong Kong market closes at 4pm, there will always be some degree of premium/discount given the lack of perfect overlap between trading hours between the venue where the ETFs trade and where the shares of their underlying constituents change hands. However, in light of these funds’ popularity there remains the possibility that RQFII quotas will continue to be fully utilised and premiums for these RQFII ETFs could ultimately increase to levels higher than those seen during their still brief life span.

We believe that the timeliness of subsequent increases to RQFII ETFs’ quota is one of the key factors that has allowed them to trade near NAV, and we hope for investors’ sake that this will continue to be the case. Taking a step back, one of the key reasons that premiums exist is the appearance of periodic imbalances between the supply and demand for additional ETF shares amongst investors in the secondary market. That said these premiums remained much lower than that for the iShares ETF, which has been in the range of 6-7%. The premium for some RQFII ETFs more recently shot up to around 1.6%, and the CSOP FTSE China A50 ETF once again reached its quota on 25 October. However, premiums for the RQFII ETFs have risen across the board in the past two weeks. During that the same period, the largest A-Share ETF as measured by AUM, the iShares FTSE A50 China Index ETF (02823) traded at a premium of around 2%. Even during the two-week period that two of the ETFs had reached their original quota limits (E Fund CSI A-Share Index ETF (83100) and CSOP FTSE China A50 ETF (82822)), their closing share prices managed to stay fairly close to their NAVs (their average premiums during this span were 0.1%-0.2%). The premiums for these 4 RQFII ETFs have been fairly low, averaging 0.1%-0.9% during their brief listing histories through 25 October 2012, and within 1.6% of their NAV at each market close.

This lofty and persistent premium might have given investors the impression that all A-Share ETFs would inevitably trade at a large premium most of the time – even RQFII ETFs tracking A-Share benchmarks.īelow we have included a chart showing the evolution of the premium/discount for all 4 RQFII ETFs currently listed on the Hong Kong market versus that for the iShares FTSE A50 China Index ETF since the RQFII ETFs were originally listed: During the period beginning in April 2010 and ending in March 2012, the ETF traded at an average premium of 8.5%. The ETF has traded at an average premium of 3.6% to its net asset value (NAV) during its entire listing history. The iShares FTSE A50 China Index ETF ( 02823) has the longest history and the largest amount of assets under management (AUM) of any A-Share ETF listed on the Hong Kong market. Myth 1: “Premiums for RQFII ETFs are high, just like those for other A-Share ETFs”

Jydge ito advise caution