Starting today, you can trade in a product that will reflect
the ups and downs of the Chinese market.
The Benchmark Asset Management Co is listing a product on the National Stock Exchange based on Hong Kong’s Hang Seng Index.
The Hang Seng Benchmark Exchange Traded Scheme is an exchange-traded fund (ETF) and will closely track the movement of the Hang Seng Index. It will allow you to take an exposure to foreign securities, mostly from China, without remitting capital or facing the paperwork you would have to deal with if you wanted to buy the securities directly.
It has reportedly collected Rs 55 crore from investors during the course of the issue which was open from February 15-24.
ETFs are products which track a basket of securities,
a commodity or an index are bought and sold by investors through an exch-ange mechanism. Others which are available in India include those tracking the Nifty, the banking index as well as the price of gold.
The Hang Seng ETF will track an index of the same name composed of 43 companies from the finance, utility, properties and commerce & industry sectors. More than 53.25% of the holdings will be made up of Chinese securities. The remaining 46.74% of the index is composed of Hong Kong-based companies.
“It is primarily a play on the Chinese economy and is
a means of diversification for the Indian investor,” said Sanjiv Shah, executive director, Benchmark AMC.
The product does offer geographical diversification. Inflation, droughts and other domestic issues will not affect your investment. But the Hang Seng still has a high correlation with the Nifty.
At 0.64, the correlation implies that it would move more
at the same pace as our local indices. An ETF with a nega-
tive co-relation, such as one tracking gold, would move in the opposite direction to the Nifty and thus offer better chance of diversification.
The ETF also carries a currency risk, since the underlying securities are in a foreign country. Over the last year, the Hang Seng appreciated 66.05%, but the rupee too went up 11.84% against the dollar. This would cut down gains from investments in the Hang Seng to 54.21%. In years that returns are not astronomical, but currency fluctuations can play spoil-sport.
Another risk that can arise is that of liquidity. The absence of sufficient liquidity can affect the price at which investments are redeemed though officials of the fund expressed confidence that liquidity would be available. The dividend yield, though, is higher for the Hang Seng at 2.65% compared to 0.94% for the Nifty.
It also makes sense for investors with a fully invested portfolio in India. “The product is one which makes sense for a high networth individual (HNI) who already has a fairly diversified product portfolio within India and is looking to take some exposure to other markets,” said Paul D’Souza of Cuzinns Investment Services.
The product might take some time to gain traction amongst retail investors.
“Although ETFs are gaining in popularity, investing in
foreign markets is still outside of the scope of most retail investors,” said Raunak Roongta, a personal financial planner.
The issue price per unit of the mutual fund scheme is Rs 1,238.89 andthe funds settlement will be done on T+1 basis, which means that you will get the money for your units one day after you have sold them. There will be no entry or exit load.
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