China Post Global, which revealed a deal last week to buy the European exchange-traded fund (ETF) business of the Royal Bank of Scotland, says it wants to be a gateway between China and the rest of the world.
As the Hong Kong-based international subsidiary of one of China's largest state-owned enterprises, the company has a firm foundation in Greater China. Now it has a European foothold too, namely ten ETFs listed in Frankfurt and Zurich with assets of more than €360 million ($400 million).
The firm is not content with its roster but wants to enlarge it. The company plans to launch what it says will be the first smart beta ETFs in Europe that target Chinese securities. It will also cross-list its ten new ETFs in Hong Kong.
Raising new assets in the crowded European market will be tough. China Post Global is new to the market with little brand recognition. Perhaps it will seek more acquisitions to build up its presence.
But, within China, the firm is on stronger ground. Its mainland parent, China Post & Capital Fund Management, is a division of China's official postal service. It has the kind of network and brand recognition foreign firms can only dream of.
That distribution network could prove invaluable in the context of this new deal. If and when ETFs are added to the Mutual Recognition of Funds scheme, those newly cross-listed Hong Kong ETFs could become eligible for sale in mainland China.
In sum, this deal demonstrates a compelling strategy for expansion-minded Chinese firms: use acquisitions to buy assets and market access abroad, then sell the acquired products back into the home market.
©2016 funds global asia