Citi ready to assist Phl in launching ETF

MANILA, Philippines - The time is ripe for the Philippine capital markets to launch an exchange traded fund (ETF), according to an expert from one of the largest financial institutions in the world.

Citi managing director and fund services head for Asia Pacific Chee-Ping Yap said the Philippines is experiencing a huge accumulation of wealth and a rising middle class that is well positioned to fuel an ETF.

Yap said the Philippines is just ripe to launch its first-ever ETF, what with the growing affluent class in the Philippines.

“The Philippines has a rising middle class and the market is highly liquid,” the Citi expert said, noting the P1.8 trillion stashed away in the special deposit accounts (SDAs).

These are a lot of unproductive cash that is searching for more opportunities for growth, he added.

An ETF is an investment fund traded on stock exchanges. The fund holds assets such as stocks, commodities, or bonds, and trades close to its net asset value (NAV). It can also be traded in a secondary market.

It is broad-based, composed of various products, for example, focused on 50 leading listed companies, or major corporate debt papers, or commodities.

What may set it apart from other funds such as mutual or unit investment trust funds (UITFs) is that it is cheaper, broad-based, long-term in character, and can easily be redeemed.

The Citi official is in the Philippines to share the global financial institution’s experience and expertise in launching and maintaining an ETF. Yap’s arrival comes just weeks after the Securities and Exchange Commission (SEC) introduced SEC Memorandum Circular 10 stating the implementing rules and regulations for the ETF.

“Citi has an end-to-end solution to an ETF, and not just transaction banking know-how,” he added.

It has been in the business of ETFs for several years now with an extensive global footprint. It has the end-to-end solution from execution to clearing and ETF settlement services.

That includes pre-launch product support, access to global markets and authorized ETF authorized participants, distribution support solutions and global transactional services.

The Citi managing director shared that Indonesia introduced the first ETF in the Asean area, which languished for eight years due to poor timing. Thailand introduced an ETF more than four years ago, but it took only a little over a year to launch six new ones.

The China Tracker ETF of Hong Kong is worth $6B, said to be bigger than any ETF in Japan. In Vietnam, the capital markets are developing suitable ETF regulations.

Globally, emerging markets ETFs are among the more popular reflecting strong growth in the market.

According to Seeking Alpha, total emerging markets funds have benefited from $25.4 billion of inflows this year compared with a $34.2 billion withdrawal suffered in 2011. On a cumulative basis, $163 billion has flowed into emerging markets funds since January 2006.

ETF funds saw strong inflows of $1.29 billion versus non-ETF fund inflows of $165 million. The most crowded markets are: South Africa, Colombia, Philippines, Thailand, and Turkey.