China Approves First Commodity-Linked Exchange-Traded Funds

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(Bloomberg) -- Chinese authorities have given the go-ahead for the first exchange-traded funds that track domestic energy, metal and agricultural futures as the country seeks to boost the liquidity of its capital markets.

Three ETFs linked to commodities futures indexes have been approved by the regulator and will be listed on the Shenzhen Stock Exchange, the bourse said in a statement Monday, without giving a time frame. The debut will mark the first trading of such products in China, it said. Two of the ETFs will track futures contracts traded in Dalian and Zhengzhou, while the third will follow the Shanghai Futures Exchange’s base metals index.

The ETFs are expected to start within six months, and will potentially lure strong inflows into local commodities futures markets, Citigroup Inc. analysts including Tracy Liao wrote in a note. In addition to these three products, a number of commodity-linked ETFs are awaiting approval, including two for gold, one for silver, one for base metals, and one for sugar, the analysts said.

The Shenzhen exchange is “actively pushing forward” the development of exchange-traded funds for other commodities including one that tracks crude oil futures, it said. The newly approved ETFs will enable investors to optimize asset allocation and diversify investment risks, and help stabilize contract prices, the bourse said.

The combined net asset value of ETFs in China grew by more than 50% over the two years through July to around 633 billion yuan ($88 billion), according to Rujing Meng, a researcher at the University of Hong Kong. Almost all of the mainland ETFs track stocks and currencies, her research shows.

The exchange and Citigroup said the three approved ETFs are:

  • The Huaxia Feed Soymeal Futures ETF will track soymeal prices on the Dalian Commodity Exchange and will be managed by China Asset Management Co.
  • The Jianxin Yisheng ZCE Energy and Chemical Futures ETF will track coal, purified terephthalic acid, methanol and glass in Zhenzhou and will be managed by CCB Principal Asset Management Co.
  • The Dacheng Nonferrous Metals Futures ETF to track the Shanghai Futures Exchange‘s base metal index and will be managed by Dacheng Fund Management Co.

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