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HK and China launch ETF connectivity scheme

Two Shenzhen-listed ETFs will each invest in products managed by Hang Seng Investment Management and CSOP Asset Management in Hong Kong.

Hong Kong’s Securities and Futures Commission (SFC) on Friday has authorised two exchange-traded funds (ETFs) to be listed on the Stock Exchange of Hong Kong under a scheme which will facilitate cross-listing of ETFs between the markets in Hong Kong and the mainland, according to a statement from the regulator.

The two products will each invest at least 90% of their assets in an ETF approved by the China Securities Regulatory Commission (CSRC) and currently listed on the Shenzhen Stock Exchange (SZSE). However, the SFC did not name those products nor provide their listing dates.

FSA sought more information from the SFC, but it was not able to provide more details in time for publication.

Both products will invest in the Shenzhen-listed ETFs through the renminbi qualified foreign institutional investor (RQFII) programme, which enables foreign firms to invest in China’s onshore markets, the regulator noted.

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

According to the CSRC statement, one product will invest in a Hong Kong-listed ETF tracking the performance of the Hang Seng China Enterprise Index, while the other tracks the S&P New China Sectors  Index.

Data from Hong Kong Exchange shows that there are only two products listed in the SAR that track those indices, which are Hang Seng Investment Management’s Hang Seng China Enterprise ETF and CSOP Asset Management’s ICBC CSOP S&P New China Sectors Index.

Meanwhile, CSRC records show that two firms applied for QDII ETF products tracking those indices, which are Harvest Fund Management’s Hang Seng China Enterprise Exchange Traded Index and Yinhua Fund Management’s ICBC CSOP S&P China New Economy Exchange Traded Index.

“The scheme is a testament to the deepening of cooperation between the mainland and Hong Kong capital markets, and will provide Hong Kong and mainland investors with more investment opportunities and product choices through access to each other’s market,” the SFC said in the statement.

The launch of the ETF connectivity scheme comes at a time when mainland, Hong Kong and Macau regulators are preparing for a pilot scheme that will connect the wealth management markets in the Guangdong-Hong Kong-Macau Greater Bay Area.

However, the planning of an “ETF Connect” programme between Hong Kong and China has been underway since 2016 and was expected to launch in 2017, but regulatory and technical issues have delayed the original plan.

Similarly, China and Japan also launched last year an ETF connectivity scheme between both markets, in which a Japanese or Chinese ETF provider will have to develop a feeder ETF that mainly invests in a counterparty’s ETF.

Part of Mark Allen.