Chinese asset managers are listing exchange traded funds to trade on the Tokyo stock exchange. This could be a favorable arrangement for both countries.
“China has historically been seen as a difficult market to access but the new ETF-JDRs will be seen as an important innovation to improve access for a range of Japanese investors,” Deborah Fuhr of ETFGI said in a recent report.
China Asset Management and China Southern Asset Management are planning on offering physical ETFs linked to the Chinese stock market in the form of JDRs, or Japanese Depository Receipts. Chris Flood for The Financial Times reports that The ChinaAMC CSI 300 Index ETF-JDR will track the performance of the CSI 300 index, which tracks the 300 largest issuers on the Shanghai and Shenzhen stock exchanges. The CSOP FTSE CHINA A50 ETF will track the FTSE China A50 index composed of the 50 largest issuers on the two main Chinese bourses.
Japanese investors are expected to benefit from this introduction for several reasons. First, the JDRs will allow retail investors to trade without opening a foreign securities account. The new Chinese securities will trade just the same as local stocks in a domestic securities account. In turn, the brokerage or trading house is liable to submit a tax return on behalf of the investor, taking the responsibility off of the individual, reports Flood.
Kazuhiko Inaba, senior trade manager at Mitsubishi UFJ Trust and Banking Corporation said that about 70% of the transactions from retail investors are done online, so handling margin trading orders is important. Cross-listed foreign ETFs are not able to handle these transactions. Furthermore, the ETF market is transforming in Japan and a new era of foreign managers listing JDRs in Japan is expected. In Japan, there is currently a vast pool of household savings that are earning next to nothing in deposit accounts.
The ADR ETFs are expected to launch February 27.
Tisha Guerrero contributed to this article.