CSOP FTSE China A50 ETF
(RMB Counter Stock Code: 82822, HKD Counter Stock Code: 02822)

IMPORTANT INFORMATION about the CSOP FTSE China A50 ETF (the "ETF")

IMPORTANT: Investment involves risks, including the loss of principal. Investors should refer to the ETF's Prospectus and the Product Key Facts Statement for further details, including the product features and risk factors. Investors should not only base on this marketing material alone to make investment decisions. Investors should note:

The CSOP FTSE China A50 ETF 1 (“ETF”) aims to provide investment results that, before fees and expenses, closely correspond to the performance of FTSE China A50 Index, which is an index consisting the top 50 A-Share companies by market capitalization listed on the Shanghai Stock Exchange or the Shenzhen Stock Exchange. There is no assurance that the ETF will achieve its investment objective and investors may not get back part of or the entire amount they invest.
The ETF is one of the first RMB physical A-share exchange traded funds issued outside PRC to invest directly in the A-share market which is inherently a market with restricted access. Investing solely in China market may also subject the ETF to emerging market risk (such as greater economic, political, tax, foreign exchange, regulatory, volatility and liquidity risks) and concentration risk.
There is no assurance that the Manager will continue to maintain its RQFII status and make quota available for the ETF’s investment.
The market price on the SEHK of units traded in RMB and of units traded in HKD may deviate significantly due to different factors such as market liquidity, supply and demand in each counter and the exchange rate between RMB and HKD (in both onshore and offshore markets).
Investors without RMB accounts may buy and sell HKD traded units only. They will not be able to buy or sell RMB traded units and should note that distributions are made in RMB only. As such, investors may suffer a foreign exchange loss and incur foreign exchange associated fees and charges to receive their dividend.
Investors who bought units on the HKD counter may be subject to currency exchange risk as the assets of the ETF are denominated in RMB.
The liquidity and trading price of the ETF RMB traded units may be adversely affected by the limited availability of RMB outside the PRC and the restrictions on the conversion between foreign currency and RMB.
There are risks and uncertainties associated with the current Chinese tax laws applicable to investments made by an RQFII ETF. Provisions of PRC taxes may not be sufficient or may even be excessive. Any shortfall between the reserves and actual tax liabilities may have to be covered by the ETF's assets and may adversely affect the ETF's asset value.
The ETF is subject to tracking error risks due to factors such as fees and expenses of the ETF and the liquidity of the market, imperfect correlation of return and other factors such as the representative sampling strategy being used and investing in collective investment scheme under exceptional circumstances.
The units of the ETF are traded on the SEHK. Their prices on the SEHK are based on secondary market trading factors and may deviate significantly from the net asset value of the ETF and may trade at a substantial premium or discount to its NAV.
The Manager may, at its discretion, pay dividends out of capital. Payment of dividends out of capital or effectively out of the capital amounts to a return or withdrawal of part of an investor's original investment or from any capital gains attributable to that original investment. Any distributions involving payment of dividends out of the capital or effectively out of the capital of the ETF may result in an immediate reduction of the NAV per Unit.

Risk associated with the Shanghai-Hong Kong Stock Connect:

The Shanghai-Hong Kong Stock Connect is subject to quota limitations.
The Sub-Fund can only trade certain eligible stocks that are listed on the SSE through the Shanghai-Hong Kong Stock Connect.
It is contemplated that both SEHK and SSE would reserve the right to suspend Northbound and/or Southbound trading if necessary.
The securities regimes and legal systems of the Hong Kong and Shanghai markets differ significantly. Market participants may need to address issues arising from the differences on an on-going basis.
The Sub-Fund’s investments through Northbound trading under Shanghai-Hong Kong Stock Connect is not covered by the Hong Kong’s Investor Compensation Fund. Therefore the Sub-Fund is exposed to the risks of default of the broker(s) it engages in its trading in China A-Shares through the program.
Shanghai-Hong Kong Stock Connect is novel in nature, and the related regulations/rules are untested. There is no certainty as to how they will be applied, and they may change from time to time.

Please note that the above listed investment risks are not exhaustive and investors should read the ETF Prospectus in detail before making any investment decision.

Fund Objective and Investment Strategy

The investment objective of the Sub-Fund is to provide investment results that, before deduction of fees and expenses, closely correspond to the performance of the Underlying Index, namely, FTSE China A50 Index (the "Underlying Index"). There is no assurance that the Sub-Fund will achieve its investment objective.
In order to achieve the investment objective of the Sub-Fund, the Manager will adopt a full replication strategy 1 by directly investing all, or substantially all, of the assets of the Sub-Fund in the securities constituting the Underlying Index (the "Index Securities") in substantially the same weightings (i.e. proportions) as these Index Securities have in the Underlying Index. The Manager will not use a representative sampling strategy other than in exceptional circumstances.

Intra-day Estimated NAV 2 & Market Price 3

Market Information 4, 5

  Date Last Change Change (%)
Official NAV per Unit in RMB - - - -
NAV per Unit in HKD**6 (for reference only) - - - -
Closing Price for RMB Traded Unit - - - -
Closing Price for HKD Traded Unit - - - -

**Exchange Rate of Renminbi (CNH) to Hong Kong Dollar6 is provided by Thomson Reuters.

Fund Information

SEHK Listing Date 28 August 2012
Financial Year 31 December
Asset Class Equity
Domicile Hong Kong
Total NAV (RMB) -
Outstanding Units -
Management Fee 0.99%
Ongoing Charges Over A Year # 1.20%
Base Currency Renminbi (RMB)
Number of Holdings -

# The ongoing charges figure is based on expenses for the year ended 31 December 2018. This figure may vary from year to year. It represents the ongoing expenses chargeable to the Sub-Fund expressed as a percentage of the Sub-Fund’s average NAV.

Underlying Index Information7

Underlying Index FTSE China A50 Index
Index Provider FTSE International Limited
Currency RMB
Benchmark Level Type Net Total Return Index
Bloomberg Total Return Index XINA50NC

Trading Information

  HKD Traded Unit RMB Traded Unit
Exchange Hong Kong Stock Exchange – Main Board Hong Kong Stock Exchange – Main Board
Date of Listing / Dealing 8 November 2012 28 August 2012
Primary Exchange Time Zone GMT+8 GMT+8
Exchange Ticker 02822 82822
Bloomberg Ticker 2822 HK 82822 HK
ISIN HK0000127412 HK0000112307
Trading Board Lot 200 units 200 units
Trading Currency HKD RMB

Participating Dealers8

ABN AMRO Clearing Hong Kong LimitedBarclays Bank PLC
BNP Paribas Securities ServicesBOCI Securities Limited
China Galaxy International Securities (Hong Kong) Co., LimitedChina International Capital Corporation Hong Kong Securities Limited
China Merchants Securities (HK) Co LimitedCIMB Securities Limited
CITIC Securities Brokerage (HK) LimitedCitigroup Global Markets Asia Limited
CLSA LIMITEDCredit Suisse Securities (Hong Kong) Limited
Deutsche Securities Asia LimitedEssence International Securities (Hong Kong) Limited
Goldman Sachs (Asia) Securities LimitedGuotai Junan Securities (Hong Kong) Limited
Haitong International Securities Company LimitedJ.P. Morgan Broking (Hong Kong) Limited
KGI Asia LimitedMacquarie Bank Limited
Merrill Lynch Far East LimitedMorgan Stanley Hong Kong Securities Limited
Nomura International (Hong Kong) LimitedOriental Patron Securities Limited
SG Securities (HK) LimitedThe Hong Kong and Shanghai Banking Corporation Limited
UBS Securities Hong Kong LimitedYuanta Securities (Hong Kong) Company Limited

Market Makers9

HKD RMB
AP Capital Management (Hong Kong) LimitedAP Capital Management (Hong Kong) Limited
Bluefin HK Ltd.Bluefin HK Ltd.
BNP Paribas Securities (Asia) Ltd.CLSA Limited
CLSA LimitedSG Securities (HK) Limited
Head & Shoulders Securities LimitedCredit Suisse Securities (Hong Kong) Ltd.
Credit Suisse Securities (Hong Kong) Ltd.Deutsche Securities Asia Ltd.
Deutsche Securities Asia Ltd.Flow Traders Hong Kong Limited
Eclipse Options (HK) LimitedIMC Asia Pacific Ltd.
Flow Traders Hong Kong LimitedOptiver Trading Hong Kong Ltd.
Guotai Junan Securities (Hong Kong) LtdUBS Securities Hong Kong Ltd.
Haitong International Securities Company Ltd 
IMC Asia Pacific Ltd. 
Optiver Trading Hong Kong Ltd. 
Tibra Trading Hong Kong Ltd. 
UBS Securities Hong Kong Ltd. 
Yue Kun Research Limited 
DRW Singapore Pte. Ltd. 
SG Securities (HK) Limited 
  • An ETF using a full replication strategy generally aims to invest in all constituent stocks/assets in substantially the same weightings as its benchmark.
  • IOPV calculations and delayed market data as shown on CSOP website (the “data”) provided by ICE Data Indices , see ICE Terms of Use , and is updated during HK Exchange trading hours. Powered by Factset . IOPV is indicative and for reference purposes only. The Fund is not sponsored, endorsed, sold or marketed by ICE Data Indices, LLC, its affiliates (“ICE Data”) and ICE Data or its respective third party suppliers make no express or implied warranties, and hereby expressly disclaim all warranties of merchantability or fitness for a particular purpose with respect to the iNAV, IOPV, fund or any fund data included therein. In no event shall ICE Data have any liability for any special, punitive, direct, indirect, or consequential damages (including lost profits), even if notified of the possibility of such damages. You acknowledge that the data is provided for information only and should not be relied upon for any purpose. HKEX Information Services Limited, its holding companies and/or any subsidiaries of such holding companies endeavour to ensure the accuracy and reliability of the information provided but do not guarantee its accuracy or reliability and accept no liability (whether in tort or contract or otherwise) for any loss or damage arising from any inaccuracies or omissions.
  • Market prices are provided on a 20-minute delayed basis by ICE.
  • Performance is calculated on NAV to NAV basis in RMB and assumes dividend will not be reinvested. Change of the official NAV per Unit in RMB and change of the NAV per Unit in HKD indicate the change of the NAV per Unit since previous Dealing Day where both the SEHK and the underlying A-Shares market are open for normal trading. Refer to the Prospectus for more information on determination of Net Asset Value. Source of NAV per Unit in RMB: HSBC Institutional Trust Services (Asia) Limited.
  • Change of the closing price in RMB and HKD traded units indicate change of closing price since previous SEHK trading day. (Source: Bloomberg)
  • The last closing NAV per Unit in HKD is indicative and for reference purpose only and is calculated using the last closing NAV per Unit in RMB multiplied by an assumed foreign exchange rate using the CNH fixed offshore RMB (“CNH”) exchange rate quoted by Thomson Reuters at 3:00 p.m. (Hong Kong time) as of the same Dealing Day. When the underlying A shares market is closed, the official last closing NAV per unit in RMB and NAV per unit in HKD will not be updated. Dealing Day means each business day on which both SEHK and the underlying A shares market are open for normal trading.
  • Index returns are for illustrative purposes only and should not be taken as an indication or guarantee of future performance. Management fees, transaction costs or other expenses are not reflected in index returns. Change indicates the change since the previous business day's closing index level. (Source: FTSE, Thomson Reuters).
  • Additional Participating Dealer(s) will be appointed from time to time.
  • Additional Market Maker(s) will be appointed from time to time.

Performance

  1 Month 3 Month 6 Month Year to date Since Inception#
CSOP FTSE China A50 ETF (82822)*
FTSE China A50 Index**

# Cumulative performance is calculated since the inception date on 28 Aug 2012 for RMB counter and 8 Nov 2012 for HKD counter.

* Fund performance is calculated on NAV to NAV basis with dividend reinvested.

** Performance of Index is calculated based on total return.

chart by amcharts.com

Tracking Difference/ Error

Tracking Difference (TD)

Tracking difference is the return difference between an ETF and its underlying benchmark/ index over a certain period of time.

Tracking Error (TE)

Tracking error measures how consistently an ETF follows its benchmark/ index. It is the volatility (measured by standard deviation) of that return difference.
Tracking Difference Tracking Error
As of 30 January 2017
Fund Listing Date: 28 August, 2012
Rolling 1-Year TD: 0.71%
TD for calendar year 2013: 0.95%
TD for calendar year 2014: -2.69%
TD for calendar year 2015: 1.04%
TD for calendar year 2016: -0.57%
TD for calendar year 2017: -2.06%
TD for calendar year 2018: -1.04%
As of 30 January 2017
Fund Listing Date: 28 August, 2012
Rolling 1-Year TE^: 2.54%
^Annualized based on the number of dealing days in the past year when daily TD is calculated

Graph for Tracking Difference

ETF's performance is calculated on an NAV to NAV basis and assumes reinvestment of distributions.

Holdings

Total Net Asset Value (in RMB) Number of Securities 1 Securities (%) 2
- - -

As of 13 Dec, 2019

Sectors Breakdown

As of 13 Dec, 2019

All Holdings

  • Sort by
Total records: 50

All dollar amounts are in RMB. All dates are in GMT+8 Time. Any exceptions are noted.

1. The "Number of Holdings" represents the number of underlying securities held by the Fund.
2. May include dividends booked but not yet received.
3. The Average Cost is the average purchasing price of each fund’s constituent stock. This is indicative and for reference purposes only.
4. In accordance with the Prospectus of CSOP ETF Series, the Manager, having regards to the prevailing circumstances, may adjust the value of any investment of the ETF so as to reflect the fair value of the investment.

Total allocation percentages shown in All Holdings table may not equal 100% due to rounding or omissions of holdings of less than 1%. Information on certain fund holdings of less than 1% may not be widely available and hence may not be included in the table of holdings shown.

Important information about Dividend out of capital / effectively out of capital

The Manager may, at its discretion, pay dividend out of capital. The Manager may also, at its discretion, pay dividend out of gross income while all or part of the fees and expenses of the ETF are charged to/paid out of the capital of the ETF, resulting in an increase in distributable income for the payment of dividends by the ETF and therefore, the ETF may effectively pay dividend out of capital.
Payments of dividends out of capital or effectively out of capital amounts to a return or withdrawal of part of an investor’s original investment or from capital gains attributed to that original investment. Any distributions involving payment of dividends out of the ETF’s capital or effectively out of capital may result in an immediate reduction in the Net Asset Value (“NAV”) per Unit.

Distribution History

Ex-Date Record Date Payable Date Dividend Per Share Dividend Paid Out of Net Distributable Income* for the month Dividend Paid Out of Capital
2018-12-14 2018-12-17 2018-12-27 RMB 0.27 per share RMB 0.12 RMB 0.15
2017-12-18 2017-12-19 2017-12-29 RMB 0.27 per share RMB 0.15 RMB 0.12
2016-12-16 2016-12-19 2016-12-29 RMB 0.27 per share RMB 0.22 RMB 0.05
2015-12-18 2015-12-21 2015-12-28 RMB 0.25 per share RMB 0.17 RMB 0.08
2014-10-07 2014-10-08 2014-10-27 RMB 0.28 per share RMB 0.13 RMB 0.15
2013-12-06 2013-12-09 2013-12-18 RMB 0.12 per share RMB 0.12 RMB 0.00

*“Net distributable income” means the net investment income (i.e. dividend income and interest income net of fees and expenses) attributable to the relevant share class and may also include net realised gains (if any) based on unaudited management accounts. However, “net distributable income” does not include net unrealised gains.

The data in “dividend paid out of net distributable income” and “dividend paid of out of capital” are just for reference only. Please kindly refer to the official dividends information in the total dividend per share (or total distribution) column.

Warning: Please note that a positive distribution yield does not imply a positive return. Investors should not make any investment decision solely based on information contained in the table above. There is no guarantee of distribution. Investors should read the relevant offering document (including the key facts statement) of the fund for further details including the risk factors.

All dollar amounts are in RMB. All dates are in GMT+8 Time. Any exceptions are noted.

FAQ

(A) BASIC ETF KNOWLEDGE
 

What is an ETF?

An ETF is an open-ended fund that can be traded like a share on the security exchange. An index-tracking ETF is a listed collective investment scheme that aims to track the performance of the underlying index. The underlying index can be on a security market, a segment of the security market, or even bonds and securities.

What is the aim of investing in ETFs?

By investing in ETFs, investors may receive a return that replicates (usually not 100%) the performance of the index without physical ownership of the index constituent securities.

How does an ETF track the performance of its underlying index?

Tracking is usually achieved by using full replication or representative sampling, or synthetic replication strategies.

Using a full replication strategy means that an ETF will invest in the constituent securities of the underlying index in substantially the same weightings as these securities have in the index. Hence, the performance of the ETF will match the performance of the underlying index as closely as practicable.

An ETF adopting a representative sampling strategy holds a sample of securities that have similar features such as market capitalisation, industry weights and liquidity to the constituent securities of the underlying index. ETFs that use this strategy tend to have a higher risk of tracking error than those using a replication strategy.

A synthetic replication strategy means that the ETF will invest in financial derivative instruments to replicate the index performance. There are additional risks associated with such strategy that are not found in the above two strategies.

Management of ETFs

Most ETFs are passively managed by managers who will invest in the constituent securities of the underlying index according to its respective weightings in the underlying index.

When a constituent security itself or its weighting in the underlying index changes, managers are responsible for implementing the necessary adjustments to the ETF's portfolio of securities to ensure that the composition and weightings of the securities held by the ETF closely corresponds to that of the underlying index.

Market price of ETFs

The market price of each ETF unit is largely based on its net asset value ("NAV") per unit. However, as ETF units are traded on the security exchange, there may be a disparity between the market price and the ETF’S NAV due to market forces, such as supply and demand. With the presence of the creation and redemption mechanism, such divergence should be minimal under normal circumstances.

Comparison between ETFs vs. shares vs. funds

  ETF Shares Traditional open-ended investment funds
Trading Channel Exchange Exchange Fund Manager or Distributor
Trading Period Intraday during exchange trading hours Intraday during exchange trading hours Subscription and redemption applications before the cut-off time on the fund's dealing day
Diversification High Low Medium-High
Minimum Trading Size Low Low Medium-High

 

How to invest in ETFs?

In Secondary Market:
An investor can invest in an ETF by simply opening an account with an authorised stock broker and start investing in an ETF in a process similar to purchasing and selling securities.

In Primary Market:
If an investor intends to invest a substantial amount in an ETF, he or she may contact one of the ETF's Participating Dealers (“PD”). The PD can assist the investor in creating ETF units with the ETF's manager, with applicable transaction fees and brokerage commission agreed upon between the investor and the PD.

 

What are the general investment risks?

The risks of investing in ETFs include but are not limited to the following points:

  • To the extent that the underlying index concentrates in the securities of a particular industry or group of industries, the performance of ETFs could be more volatile than the performance of less concentrated funds.
  • Like other index-tracking funds, an ETF is not actively managed meaning the manager does not have the discretion to select securities individually or to take defensive positions in declining markets. Hence, any fall in the underlying index will result in a corresponding fall in the value of the ETF. On the other hand, no assurance can be given that the performance of an ETF will be identical to the performance of the underlying index due to many factors.
  • Although ETF units will be listed on a security exchange, there can be no assurance that active trading in the ETF units can be maintained.

In general, an investor should consider if an investment in ETFs is a suitable investment for himself or herself in terms of his or her financial situation, investment experience and investment objectives. The investor should read the offering documents of the relevant ETF (including the full text of the risk factors stated therein) in detail before making any investment decision. It should be noted that investment involves risks (including the possibility of loss of the capital invested), that prices of ETF units may go up as well as down and past performance information is not indicative of future performance.


(B) FOCUSING ON THE CONCEPT OF RQFII ETF
 

GENERAL

What is RQFII?

RQFII is a new policy initiative of the Mainland authorities which allows qualified RQFII holders to channel RMB funds raised in Hong Kong to be invested into the PRC securities markets. RQFII holders may issue public or private fund or other investment products using their RQFII quotas. RQFII funds give retail investors access to invest in PRC securities markets as they can invest RMB directly into the PRC bond and equity markets (including the inter-bank bond and exchange-traded bond market) through the RQFII quotas. Subscriptions and redemptions of units in the fund must be settled and paid in RMB. Like other funds, RQFII funds must be authorized by the SFC before they can be marketed to the public in Hong Kong. RQFII is granted to Hong Kong subsidiaries of qualified Mainland asset management and securities firms which allows them to channel RMB raised in Hong Kong to invest in the Mainland securities markets.

What is RQFII A-share ETF?

RQFII A-share ETF is a RMB-denominated physical A-share ETF. Through the RQFII investment quota granted by Mainland authorities, an RQFII A-share ETF seeks to track the performance of an A-share index by channeling the RMB raised outside mainland China to invest directly in a portfolio of A-shares. RQFII A-share ETFs are traded on the Stock Exchange of Hong Kong (SEHK) like stocks. Like other ETFs listed on the SEHK, RQFII A-share ETFs must be authorized by the SFC before they can be offered to the investing public. Investors are reminded that they should read the EFT’s offering document) carefully to understand its key features and risks before making an investment.

Why invest in RQFII ETF?

An RQFII ETF will invest RMB solely and directly into the PRC securities markets through its RQFII quota. This means that investors are fully exposed to the RMB currency and PRC domestic securities markets. It should be noted that not all issuers of RMB funds issued in Hong Kong have the pre-approved RQFII investment quota to invest RMB directly in securities and bonds issued in the PRC. In such cases, the issuer may be able to invest in only either offshore RMB denominated investments (e.g. dim sum bonds) or in non-RMB assets.

What are the key differences between RQFII A-share ETFs and other existing RQFII retail funds currently available to Hong Kong investing public?

  RQFII A-share ETFs RQFII retail funds
RQFII quota requirement
Listing on SEHK
Underlying investment A-shares traded in the Mainland markets At least 80% in RMB bonds and bond funds issued in mainland China, not more than 20% in China A-shares and other equity investments

Description of the Underlying Index

The FTSE China A50 Index is a free float-adjusted market capitalisation-weighted index compiled and published by FTSE International Limited (“FTSE”) and is a real-time, tradable index comprising of the largest 50 A-Share companies by full market capitalisation. The index offers the optimal balance between representativeness and tradability for China’s A-Share market. It is a price return index and includes securities listed on both the Shanghai and Shenzhen security exchanges.

Salient terms of the CSOP A50 ETF

Investors will be informed that the minimum trading size of the CSOP A50 ETF is 200 units, that the ETF operating cost includes Management Fee, Trustee Fee and other expenses of which full details can be found in the ETF’s prospectus.

Investors will also be informed that prior to making an investment in the ETF, they will be required to consult with their stock broker or financial adviser for account set-up details to trade RMB products.

Who should invest in an RQFII ETF?

Investors who want to retain their RMB (CNH) holding and who are positive about the China A-Share market should invest in the ETF. However, investors should consider the product specific risks outlined below. Investors should also read the offering document and the product key facts statement (Product KFS) of the Fund carefully to understand the key features and risks of the RQFII fund and contact their intermediaries before making any investment.

What are the key differences in structure and trading between RQFII A-share ETFs and other A-share ETFs currently traded on the SEHK?

  RQFII A-share ETFs Other A-share ETFs
Investment strategy and replication/ tracking method
  • Physical full replication or representative sampling
  • Direct investment in the Mainland securities markets through RQFII investment quota
  • Invest directly in A-shares that replicate or represent the composition of the underlying A-share index
  • Synthetic replication
  • No direct investment in or holding of Mainland securities
  • Invest in derivative instruments to replicate the underlying index performance
Trading currency RMB and HK dollar HK dollar

Is there any specific condition on RQFII A-share ETFs that may lead to the suspension of new unit creation?

RQFII A-share ETFs may suspend the creation of new units when, among others:

  • the RQFII investment quota is used up, and
  • the RQFII holder cannot obtain additional quota in a timely manner.

In such event, the units of RQFII A-share ETFs may trade at a significant premium to their NAV.

What are the risks involved in RQFII funds in general?

The risks of investing in RQFII funds include but not limited to the following points:

RQFII regime risk

The RQFII policy and rules have only been recently announced and there may be uncertainty as to its implementation and such policy and rules are subject to change and interpretation by PRC authorities. The uncertainty and change of the laws and regulations in the PRC (including the RQFII policy and rules) may adversely impact the RQFII fund.

Risks relating to Mainland markets

The concentration of RQFII fund's investment in securities and bonds issued in mainland China may result in greater volatility than portfolios which comprise of broad-based global investments.

Investing in PRC-related companies and in the PRC markets involve certain risks and special considerations not typically associated with investment in more developed economies or markets, such as greater political, tax, economic, foreign exchange, liquidity and regulatory risks.

There are risks and uncertainties associated with the current Chinese tax laws applicable to investments made by an RQFII fund. Although some RQFII funds may have made tax provision in respect of potential tax liability that may arise from their investments, the provision may not be sufficient or may even be excessive. Any shortfall between the reserves and actual tax liabilities may have to be covered by the fund's assets and may adversely affect the fund's asset value.

Currency risk

Since an RQFII fund is denominated in RMB, Hong Kong dollar-based investors are therefore exposed to fluctuations in the RMB exchange rate against the Hong Kong dollar. Like any currency, the exchange rate of the RMB may rise or fall. The RMB is currently not freely convertible and is subject to exchange controls and restrictions.

Market/Investment risk

An RQFII fund is an investment fund product and not a bank deposit. In general, there is no guarantee of the repayment of principal or dividend payment.

The underlying investments of an RQFII fund may fall in value and therefore investment in the fund may suffer loss even if RMB appreciates.

Reliance on market maker risk

Market makers may not be as interested in making a market in ETF units denominated in RMB. Any disruption to the availability of RMB may adversely affect the capability of market makers in providing liquidity for the units of RQFII A-share ETFs. The liquidity of the ETF may be adversely affected if there is no market maker for the fund or if the market making activities are not effective.

Other specific risks from investing in the PRC:

China market risk

By investing in the China market, investors will be exposed to both emerging markets risks and risks specific to the China marker.

Any significant change in PRC’s political, social or economic policies may have a negative impact on investments in the China market and this will affect the value of the Fund. The regulatory and legal framework for capital markets and joint security companies in the PRC may not be as well developed as those of developed countries. Chinese accounting standards and practices may also deviate significantly from international accounting standards. The settlement and clearing system of the Chinese securities markets may not be well tested and as such, may be subject to increased risks of error or inefficiency.

As the number of PRC securities and their combined total market value are relatively small compared to more developed markets, investments in these securities may be subject to increased price volatility and lower liquidity. The PRC securities market has in the past experienced substantial price volatility, and there is no assurance that such volatility will not occur in future.

Investors should also be aware that changes in the PRC taxation legislation could affect the amount of income which may be derived and the amount of capital returned from an investment into a RQFII ETF.

Foreign exchange control risk

The PRC government may also impose restrictions on the repatriation of RMB out of China. This will in turn limit the depth of the RMB market in Hong Kong, thus reducing the liquidity of the Fund. The Chinese government’s policies on exchange control and repatriation restrictions are also subject to changes which may affect the fund’s positions.

Government intervention and restrictions risk

The operation and market making activities of RQFII A-share ETFs may be affected by interventions by the governments and regulators in the financial markets, such as an imposition of trading restrictions, a ban on "naked" short selling or the suspension of short selling for certain stocks.


(C ) CROSS-BORDER KNOWLEDGE
 

How is the CSOP A50 ETF a cross-border ETF?

The CSOP A50 ETF aims to track the performance of the underlying index by directly investing in the constituent securities of the underlying index which are solely A-Shares. However, the ETF itself is listed on the Hong Kong Exchanges and Clearing Limited. A cross-border flow of money will thus occur in the investment process.

Brief description of the A-share market:

The PRC has two security exchanges - the Shanghai Security Exchange (“SSE”) which was established in November 26, 1990 and the Shenzhen Security Exchange (“SZSE”) which was established in December 1, 1990.  The two exchanges are under the direct management of the CSRC. The main functions include providing premises and facilities for securities trading, developing the business rules of the exchanges, organising and supervising securities trading and regulating exchange members and listed companies amongst others.

Since establishment, both the SSE and SZSE have made great achievements in terms of the quantity and types of products listed on them. Currently listed products include A-Shares, B-Shares, funds and bonds. As of May 31, 2012, the number of listed companies amounted to 2412, of which 933 were listed in Shanghai and 1479 were listed in Shenzhen. The combined market capitalization of both the SSE and SZSE amounts to 23.9 trillion Yuan.

Differences between the A-Share and H-Share markets

Trading Hours:

The A-share market opens at 09:30 and closes at 11:30 for the morning trading session. The afternoon trading session opens at 13:00 and closes at 15:00.

The Hong Kong Security Exchange opens at 09:30 and closes at 12:00 for the morning trading session. The afternoon session opens at 13:00 and closes at 16:00.

The A-share and Hong Kong markets also have a different holiday schedule.

“T+ 0” vs. “T+1” Trading Rule:

The A-share market has the T+1 trading rule which means a security bought on T day can only be sold on T+1. Short-selling is prohibited with an exception made for instruments covered by a pilot program. No such rule exists in the Hong Kong market, save that short-selling is only permitted in securities which meet certain requirements.

Settlement cycle:

The A-share market settles on a T+1 basis, while the Hong Kong market settles on a T+2 basis.

CNH vs. CNY

Following the introduction of a series of policies by the PRC authorities, a RMB market outside the PRC has developed and has expanded rapidly since 2009. RMB traded outside the PRC is often referred as “offshore RMB” or “CNH”. In contrast, RMB that is traded in the PRC is often referred to as “onshore RMB” or “CNY”.

Both onshore and offshore RMB are the same currency but are traded in different markets. Since the two RMB markets operate independently, with much restriction placed on the flow between them, both onshore and offshore RMB are traded at different rates. Due to the strong demand for CNH, CNH was previously traded at a premium compared to CNY, although occasional discounts are observed. The relative strength of both the onshore and offshore RMB may change significantly within a short period of time.

Cross Border Investment Risks

Offshore RMB/CNH market risk

Although it is expected that the offshore RMB market will continue to grow in depth and size, its growth is subject to many constraints as a result of PRC laws and regulations on foreign exchange. There is no assurance that new PRC regulations or arrangements will not be promulgated, terminated or amended in the future which will have the effect of restricting the availability of offshore RMB. The limited availability of RMB outside the PRC may affect the liquidity of the CSOP A50 ETF.

Offshore RMB/CNH Remittance Risk

The RMB is currently not freely convertible and is subject to exchange control imposed by the PRC government. There is no assurance that new PRC regulations will not be promulgated in the future which have the effect of restricting or eliminating the remittance of RMB into or outside the PRC. Such an event could have a severe adverse effect on the operations of the CSOP A50 ETF.

Risks relating to RMB trading and settlement of units

It is likely that not all intermediaries are prepared to carry out trading and settlement of RMB-denominated securities. In addition, the liquidity and trading price of the units of RQFII A-share ETFs may be adversely affected by the limited availability of RMB outside mainland China and the restrictions on the conversion between foreign currency and RMB.

Although the SEHK has launched the RMB Equity Trading Support Facility (TSF) to enable investors who have insufficient RMB to buy RMB-traded shares, the TSF only supports secondary trading of RMB shares currently and not other types of securities. Therefore, investors cannot use this facility to buy RQFII A-share ETFs.

Trading differences risk

While A-shares are subject to trading bands which restrict increases and decreases in the trading price, trading of RQFII A-share ETFs listed on the SEHK is not subject to such restrictions. This difference may affect the level of premium or discount of the trading price of the ETF's units to its NAV.

Mainland brokerage risk

Only one brokerage can be appointed for each market (the Shenzhen Stock Exchange and the Shanghai Stock Exchange) to execute transactions (i.e. trading of A-shares) for the RQFII A-share ETF in mainland China. As such the RQFII A-share ETF will rely on only one brokerage for each market, which may be the same brokerage. If the manager of the RQFII A-share ETF is unable to use its designated brokerage in mainland China, the operation of the RQFII A-share ETF will be adversely affected and may cause the units of the RQFII A-share ETF to trade at a premium or discount to the RQFII A-share ETF's NAV or the RQFII A-share ETF may not be able to track the underlying index.

Reliance on parent company risk

The manager of RQFII A-share ETFs may not be experienced in managing ETFs and may heavily leverage on the expertise and systems of its Mainland parent company to support the RQFII A-share ETF's investments in the A-share markets. Any disruption in the assistance from the Mainland parent company may adversely affect the operations of the RQFII A-share ETF.

Risks in light of the cross-border nature of the CSOP A50 ETF

The CSOP A50 ETF is subject to operational and settlement risks due to its cross-border nature. Operational risks may also be present in the form of communication and trading systems failure. As the CSOP A50 ETF transacts in the China A-Share market, the CSOP A50 ETF may also be exposed to cross-border settlement risks. This may affect the ability to ascertain the value of the CSOP A50 ETF’s portfolio and this may adversely affect the CSOP A50 ETF.

Disclaimer:

This website is owned and managed by CSOP Asset Management Limited (“CSOP”). CSOP reserves the right to change, modify, add or delete, any content and the terms & conditions of use of this website without notice. Users are advised to periodically review the contents of this website to be familiar with any modifications.
The performance figures contained on this website are for informational purposes only. Past performance is not indicative of future performance. Investment involves risks and the ETF's NAV per unit may rise as well as fall. Persons interested in investing in the ETF should read the relevant fund offering documents (including the full text of the risk factors stated therein) in detail before making any investment decision.


Index Provider Disclaimer:

The CSOP FTSE China A50 ETF (the “ETF”) has been developed solely by CSOP Asset Management Limited. The ETF is not in any way connected to or sponsored, endorsed, sold or promoted by the London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). FTSE Russell is a trading name of certain of the LSE Group companies.
All rights in the FTSE China A50 Index (the “Index”) vest in the relevant LSE Group company which owns the Index. FTSE® is a trade mark of the relevant LSE Group company and is used by any other LSE Group company under license.
The Index is calculated by or on behalf of FTSE International Limited or its affiliate, agent or partner. The LSE Group does not accept any liability whatsoever to any person arising out of (a) the use of, reliance on or any error in the Index or (b) investment in or operation of the ETF. The LSE Group makes no claim, prediction, warranty or representation either as to the results to be obtained from the ETF or the suitability of the Index for the purpose to which it is being put by CSOP Asset Management Limited.


This website is prepared by CSOP and has not been reviewed by the Securities and Futures Commission.

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