Deutsche Bank closes 16 ETFs in Hong Kong after slump in demand

[HONG KONG] Deutsche Bank AG's asset-management unit is closing 16 exchange-traded funds in Hong Kong, following BlackRock Inc in de-listing ETFs with low demand.

The 16 Deutsche Bank X-trackers ETFs ceased trading on Wednesday, according to a Hong Kong exchange filing. Most of the funds have assets of less than US$40 million.

The closures highlight the challenge of operating ETFs in markets where investors have yet to be persuaded by their allure. While the US$4.5 trillion global ETF market is setting new asset records almost every month, Hong Kong is bucking the trend - investors have pulled money from ETFs this year even as equity prices in the former British colony climb to a two-year high.

"Deutsche Bank was one of the early adopters of ETFs in Europe, but Hong Kong is at a slower stage of development and client needs are different here," said Melody He, head of ETF and index solutions at CSOP Asset Management Ltd. "Distributing ETFs is harder in Asia and they may not have seen enough demand."

Money flowing into US equity ETFs increased by 7.5 per cent or US$177.6 billion this year, according to data compiled by Bloomberg. In Hong Kong, assets dwindled by 6.6 per cent, or US$2.3 billion, the data show.

Hong Kong's ETF market is hampered by factors including use of a commission-based fee model where banks or other distributors receive higher fees for selling active funds rather than ETFs, said Chris Pigott, head of Hong Kong ETF services at Brown Brothers Harriman & Co.

The ETF closures include 10 funds on China's CSI300 Index covering sectors including banks, health care, financials and energy. BlackRock has been shutting down funds in Hong Kong, most recently earlier this year. Six of those had also tracked sectors on the CSI300 index. BlackRock, the world's largest money manager, and Deutsche Bank still operate ETFs in Hong Kong.

"Most ETFs in Hong Kong are Greater China-based and a handful of those are already successful," said Mr Pigott. "It's tough to differentiate so I could see why they may want to clean up some of those products."

Karene Dufour, a spokeswoman for Deutsche Bank in Hong Kong, declined to comment.

BLOOMBERG