John Sin, BNY Mellon
Sin told FSA that he expects ETF Connect to boost the trading volumes of the ETF market in Hong Kong. He added that in order to benefit early from this boost some more aggressive asset managers are setting up platforms in advance of the launch of the cross-border programme.
“Their plan is generally to launch straightforward, plain-vanilla ETF products, which track their benchmarks in a physical and traditional way,” Sin said.
“Once the ETF Connect is officially launched, the managers could design and launch other product suites, depending on the regulatory framework and rules, in order to be more efficient in participating in the scheme,” he added.
BNY Mellon’s asset servicing division provides operational solutions for fund managers in the areas of custody, accounting, administration, brokerage and securities lending.
He said that his firm is currently in discussions with managers who are interested in entering Hong Kong’s ETF market with the intention to participate in the ETF Connect programme. The potential clients include international managers as well as Chinese firms already established in Hong Kong.
The ETF Connect was initially scheduled to be operational by the end of 2017 but the launch has been delayed and is now expected to take place at the end of 2018 or in the early 2019, according to industry insiders.
When in place, the cross-border scheme will allow mainland investors to trade ETFs listed on the Hong Kong Exchange, and Hong Kong investors to trade those listed in Shanghai and Shenzhen. It will add to the existing cross-border trading links: the Stock Connect, the Bond Connect and the Mutual Recognition of Funds.
Research by Broadridge Financial shows that the ETF markets in China and Hong Kong are projected to grow fastest among other markets across Asia Pacific, especially after the launch of the ETF Connect scheme. It expects that by 2025 China and Hong Kong will rank as the second and third largest ETF markets in the region, accounting for 19% and 18% of assets, respectively.
Some ETF issuers have been frustrated with the delay of the launch of the ETF Connect, according to David Quah, co-managing director of quantitative investment solutions at Value Partners. Quah said in an earlier interview that managers who have been preparing for the ETF Connect feel that the uncertainty about the launch date and the criteria for inclusion of ETFs in the cross-border scheme is hurting their business. He attributed recent delisting of some ETFs from the Hong Kong stock exchange to this uncertainty and frustration.
Sin, however, believes that asset managers who want to gain access to China’s investors via the scheme need to plan with a long-term perspective in mind.
“Many of them understand that the opportunity cannot be realised within merely six or nine months,” he said. “All the players in the market, including us, have seen that the Stock Connect did not gain much traction initially. The opportunity is still there but we have to be patient.”