Hong Kong’s stock market is not efficient enough to support strong ETF adoption, Au said, speaking at the ALFI Hong Kong Investment Funds Seminar last week.
Au said the Hong Kong ETF market has relatively low liquidity compared to its neighbours.
“The advantages of ETF trading should be high liquidity yet at a low cost. But in Hong Kong, both qualities are absent,” he said.
Therefore, ETFs for sale on the domestic market do not attract local investors, who have an appetite for products that can potentially deliver strong, short-term returns, he added.
Au said that because the current ETF product offering to local investors is limited and unable to meet their return expectations, many investors instead opt for offshore passive products.
The Hong Kong government is planning to create more channels for cross-border investment, including ETF Connect, chief executive Carrie Lam said in her policy address last week. The ETF Connect, modeled on the existing Stock Connect, is expected to allow cross-border trading of the products.
At the time of writing, the government has yet to announce the details of the mechanism or provide the date for the launch. Au believes that an ETF Connect scheme would spark volume and vitality in the local ETF market.
There are 107 ETFs registered with the Securities and Futures Commission, accounting for just under 10% of all listed funds, FE data shows.
Value Partners currently manages a Chinese equity-focused ETF with AUM of RMB 129.6m ($19.66m).
Two managers of ETFs have recently filed notice to the exchange to delisting the products in November.
