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Want to follow the strategy of legendary investor Jim Rogers, who is super bullish on the commodities
market but doesn’t have the depth to invest directly in a basket of oil, gold and soyabeans? Try Hong Kong Stock Exchange-listed Lyxor ETF Commodities CRB (HKSE code: 2809).

Lyxor ETF Commodities CRB is an exchange-traded fund (ETF) that tracks the commodities-based Reuters/
Jefferies CRB index (see table on Page 54 for the index methodology).

At its closing price of HK$18.48 (RM8.39) last Wednesday, the ETF was being traded 23.2% above its five-year low of HK$15, registered on Feb 24, 2009, but almost half its five-year peak of HK$36.95 on March 7, 2008.

Despite the recent rally in stock markets around the world, the Lyxor ETF Commodities is up only 13.37% year to date. Hence, for those who are worried that crude palm oil (CPO) prices may have risen too quickly (by about 48% year to date), and want to widen their exposure to more commodities, the Lyxor ETF may be worth a look.

The minimum board lot for the ETF is 250 shares, making it affordable for retail investors who want broad exposure in commodities. Lyxor is the name of the UK-based asset management firm that issues the commodities ETF, among others.
Lyxor ETF Commodities is just one of many ETFs that track the commodity markets. But besides commodities, there are equity market-linked ETFs that may appeal to retail investors who wish to gain broader exposure in overseas equity markets but lack detailed knowledge of those markets to invest directly in the stocks.

ETF is defined by Investopedia as a “security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. ETFs experience price changes throughout the day as they are bought and sold”.

There are many ETFs based on the Hong Kong and China stock markets. These are listed predominantly on the HKSE. For instance, IShares FTSE/Xinhua A50 China Tracker (HKSE code: 2823) tracks the 50-member FTSE/Xinhua China A50 Index, which comprise 50 of the largest liquid A-share Chinese companies listed on the Shanghai as well as Shenzhen Stock Exchange. The ETF has a huge market value of HK$33.62 billion and is actively traded with an average daily transaction value of HK$1.13 billion over the last 12 months.

The ETF is issued by a unit of Barclays Global Investors, an investment subsidiary of UK-based Barclays Bank.

IShares FTSE/Xinhua A50 China Tracker gives investors exposure to the two mainland stock exchanges, which are not entirely open to foreign investors (currently only mainlanders and selected foreign institutional investors are allowed to trade A shares).
The stock exchanges in Shanghai and Shenzhen are trading at a higher premium than the HKSE. According to Bloomberg, the FTSE/Xinhua China A50 Index has a market price-earning (PE) multiples of 21.48 times, compared with Hong Kong’s Hang Seng China Enterprise Index’s (HSCEI) 15.96 times.

HSCEI comprises the 43 largest enterprises in mainland China with H-share listings in Hong Kong. It shares some of the constituents of the index — such as the Industrial and Commercial Bank of China Ltd (China’s largest bank in terms of assets), Bank of China Ltd and China Life Insurance Co Ltd — with the FTSE/Xinhua China A50 Index.

Investors who feel that the A-share Chinese companies are overpriced can opt for Hang Seng H-Share Index ETF (HKSE code: 2828), which tracks the HSCEI that has a lower market PE compared to FTSE/Xinhua A 50 China Tracker. The former closed at HK$103.10 last Wednesday, but is tradable in a minimum board lot of 200 shares.

Those who want to have exposure to the benchmark Hang Seng Index (HSI) can opt for the Hang Seng Index ETF (HKSE code: 2833), which tracks the HSI that comprises the 30 largest companies listed on the HKSE, including  HSBC Holdings plc, Hutchison Whampoa Ltd (the flagship of tycoon Li Ka-shing) and other mainland companies. HSI has a market PE of 16.3 times.

Hang Seng Bank Ltd in Hong Kong is the issuer of both the Hang Seng H-Share Index ETF and Hang Seng Index ETF.

Other than ETFs covering the popular Hong Kong and China stock markets, investors can also invest in the equity markets of India, Taiwan and Vietnam through the respective ETFs. These markets have in fact delivered more surprises than Hong Kong and China.

India’s ruling Congress Party’s surprisingly decisive victory in the country’s general election in mid-May has set off a rally in its stock market. It was reported that the strong mandate received by the Congress Party and its allied parties would further enhance India’s competitiveness to narrow China’s economic lead over the former.

It is worth noting that IShares MSCI INDIA 100US$ (SGX code: I98), an ETF that tracks India’s stock market, has gained 106% year to date. The ETF is listed on the Singapore Exchange and is designed to track the 58-member MSCI India Index.

According to Bloomberg, The MSCI India Index covers at least 85% of the free float-adjusted market capitalisation of each industry group in the Indian stock market. Its top five member stocks — Reliance Industries Ltd (an industrial conglomerate controlled by the Ambani family), Infosys Technologies Ltd (outsourcing services), ICICI Bank (India’s largest private bank), Housing Development Finance Corp Ltd (HDFC) and HDFC Bank — contribute 43.8% of the total index weightage.

The market PE for MSCI India Index is not available. However, its top five constituent stocks are currently traded at a forward PE range of between 15.2 times and 23.6 times. While this may suggest that the ETF is priced on the high side, one cannot ignore the robustness of the India’s economy.

Likewise, the Taiwan stock market also received a jolt of excitement recently as the “renegade province” of China will begin accepting applications from Chinese firms to invest in Taiwanese firms in early July, in up to 101 sectors including manufacturing, services and public construction. The move is seen as a friendly gesture by the Taiwanese government to enhance ties with China. Already, China’s state-owned China Mobile Ltd is planning to acquire a 12% stake in Far EasTone Telecommunications Co Ltd.

Singapore-listed DBXT MSTaiwan 10US$ (SGX code: HD7), which is issued by a unit of Deutsche Bank AG and tracks the MSCI Total Return Net Taiwan Index, has gained 46.9% year to date to US$13.62, in parallel to the benchmark Taiwan Taiex Index that has risen 50.9% year to date.

There is also the DBXT FTSE VIETNAM ETF 10US$ (SGX code: HD9) that tracks the FTSE Vietnam Index, which is said to provide broad coverage of the Vietnamese equity market and comprises the top 90% of eligible companies ranked by their full market capitalisation. The ETF has risen 38.1% year to date to US$44.64, whereas the benchmark Ho Chi Minh Stock Index has risen 28.2%.

There is certainly increasing interest in ETFs from local investors, especially those vying for ETFs that can give them broader exposure in not just individual stocks, but also the performance of regional stock markets and commodities. The pitfall, of course, is the lack of accessibility to the information on these foreign-listed ETFs.

Having said that, the ETF market is still in its infancy in Malaysia, when compared to Singapore and Hong Kong. There are only two equity ETFs listed on Bursa Malaysia — the FB30ETF (Bursa Malaysia code: 0820EA) and MyETF Dow Jones Islamic Market Malaysia Titans 25 (Bursa Malaysia code: 0821EA), and they are thinly traded. The former tracks the stocks on FTSE Bursa Malaysia Large 30 Index, while the latter tracks 25 syariah-compliant securities of companies listed on Bursa Malaysia, weighted by market capitalisation.

The bottom line is, there has yet to be a foreign-market ETF listed on Bursa Malaysia. In view of the growing number of local investors shifting their attention overseas, perhaps there should be more effort given to the development of this segment here.  



This article appeared in the Corporate page of The Edge Malaysia, Issue 757, June 1-7, 2009.

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