Last update: Sun, 14 Feb 2016 01pm

Deutsche, Amundi set for bigger share of yuan funds pie

Global fund managers are reaching outside Asia to tap growing demand for Chinese assets after authorities relaxed investment restrictions to promote the international use of the yuan. Chinese asset manager Harvest Global Investments recently partnered with Deutsche Asset & Wealth Management to list an exchange-traded fund (ETF) in the United States under a growing yuan-denominated investment scheme offering US investors direct access to China's A-share market for the first time.

Offshore ETFs focused on the A-share market are among the few options for foreigners to access mainland markets and they have become popular in recent months due to anaemic growth prospects in the West and a recovering Chinese economy.

Total assets under management for the offshore ETFs have swelled to about $19 billion in a few years, with the new US listed ETF attracting more than $100 million in initial investments, the biggest launch among all equity ETFs in the US ETF market this year, Deutsche Bank said.

"We are very satisfied," Marco Montanari, head of Passive Asset Management Asia Pacific of Deutsche Asset & Wealth Management, told Reuters.

The US ETF has a way to go before it catches up with the top 3 A-share ETFs listed in Hong Kong, namely the ishares FTSE China A50, CSOP FTSE China A50 RQFII and ChinaAMC CSI300 RQFII, which take the lion's share in the ETF landscape, managing more than $13 billion in assets.

ETFs offered under a yuan-denominated investment scheme launched in 2011 - called the Renminbi Qualified Foreign Institutional Investor (RQFII) - is preferred more by investors than ETFs launched under its older cousin - the Qualified Foreign Institutional Investor (QFII) - started in 2002.

That is because the RQFII ETFs invest in all constituent stocks with the same weight as those in the benchmark, compared with the QFII ETFs, which use derivatives to gain exposure and thus have higher counterparty risk and tracking error.

"US investors have historically shown a strong interest in physical ETFs and a majority of ETFs in the US are physical ones. It offers a higher level of comfort," said Deutsche's Montanari, who is speaking with regulators to list its first RQFII ETF in Europe.

The growth in ETF products targeting investors outside Asia has also gained traction because of regulatory prodding, with US-based fund manager Krane reportedly in talks with Chinese Bosera to list an RQFII ETF in the United States.

Copyright Reuters, 2013