Posted inHong KongChinaEquities

China ETF providers bet on Hong Kong-listed tech stocks

Six Chinese domestic mutual fund managers are allowed to launch new ETFs linked to the Hang Seng TECH Index.
Exchange square and International Finance Center 2(the back), with Hong Kong and Chinese flags

The products will give Chinese investors better access to Hong Kong-listed mainland stocks such as Alibaba and Tencent. Other names in the index, comprising the 30 largest tech stocks listed on the Hong Kong stock exchange, include, Meituan Dianping, NetEase and Semiconductor Manufacturing International and Xiaomi.

The China Securities Regulatory Commission (CSRC) announced its approval for the ETFs on Friday, which was reported in state media.

The six Chinese mutual fund managers include China Asset Management, Dacheng Fund Management and E Fund Management.

The Hang Seng TECH Index was introduced in July 2020, and is divided into six segments: healthcare, consumer discretionary, industrials, finance, information technology and others, with information technology accounting for almost 70% of market cap.

“In view of the rapid blossoming of new businesses in the technology sector and the increasing number of technology companies that are listed in Hong Kong, we developed the Hang Seng Tech Index to meet the fast-growing interest in this investment theme among investors,” Anita Mo, Hang Seng Indexes Company’s deputy CEO, said at the time.

CSOP Asset Management, based in Hong Kong, was the first out of the blocks, launching an ETF tracking the index in August 2020.

Other managers quickly followed, with ETF products linked to the TECH index launched by China Asset Management and Hang Seng Investment Management a few days later, and then Blackrock receiving approval from the Securities and Futures Commission (SFC) in September to launch the iShares Hang Seng Tech ETF.

ETF Connect

Also in August, the SFC authorised two exchange-traded funds (ETFs) to be listed on the Stock Exchange of Hong Kong under a scheme which facilitates cross-listing of ETFs between the markets in Hong Kong and the mainland.

Under the so-called ETF Connect scheme, the products each invest at least 90% of their assets in an ETF approved by the CSRC and currently listed on the Shenzhen Stock Exchange, with the renminbi qualified foreign institutional investor (RQFII) programme used as the payment channel.

At the same time, the CSRC also approved the registration of two ETFs to be on the Shenzhen Stock Exchange. The products each invest at least 90% of their assets in an ETF listed in Hong Kong and use the qualified domestic institutional investor (QDII) scheme, which enables domestic firms to invest in offshore markets.

ETF Connect finally opened in October 2020, with the four “feeder” ETFs introduced as part of the scheme’s debut.

The Hong Kong listed feeder ETFs were the Hang Seng Harvest CSI 300 Index ETF, which invests in the Shenzhen-listed Harvest CSI 300 Index ETF, and the CSOP Yinhua CSI 5G Communications Theme ETF, which invests in the Shenzhen-listed Yinhua CSI 5G Communications Theme ETF.

Meanwhile, the Shenzhen-listed feeder ETFS were the Harvest Hang Seng China Enterprises Index ETF gains its exposure by investing in the Hong Kong-listed Hang Seng China Enterprise Index ETF, and the Yinhua ICBC CSOP S&P China New Sectors ETF, which invests in the Hong Kong-listed ICBC CSOP S&P New China Sectors ETF.

Part of the Mark Allen Group.