Hong Kong’s securities watchdog has approved the listing of two exchange-traded funds (ETFs) that will invest in ETFs listed on the mainland, as part of efforts to expand investors’ choices of financial products on both sides of the border.
The pair will each invest 90 per cent or more of their assets in an ETF approved by the China Securities Regulatory Commission, currently listed in the Shenzhen Stock Exchange and tradable by certain qualified foreign institutional investors.
The move coincided with the CSRC’s approval for two ETFs to be listed on Shenzhen’s bourse under the same scheme. They will each invest at least 90 per cent of their total net asset value in an SFC-authorised ETF already listed in Hong Kong, also tradable by some qualified mainland investors.
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“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 a statement on Friday.
The announcement comes as Hong Kong’s future as an international financial centre has been clouded by back-to-back tumultuous events – the anti-government protests last year and now the controversy over Beijing’s crafting and enactment of a national security law for Hong Kong.
Singapore, a long-time rival and a pillar of stability, is seen as benefiting from capital flowing out of Hong Kong.
The SFC in December last year issued a circular on streamlined approval requirements for ETFs adopting the so-called “master-feeder” structure, following requests to allow more flexibility in approving such products.
The request was aimed at facilitating more cost-effective development of ETF products, and offering more investment choices to investors.
The watchdog said at the time it would allow an SFC-authorised “feeder” ETF to invest its assets in an overseas-listed “master” ETF without its authorisation on a case-by-case basis, provided there are sufficient safeguards to protect investors.
Factors also considered are “demonstrable benefits” to the Hong Kong market, such as the master ETF being sizeable and its underlying index widely accepted.
Hong Kong has already introduced three stock and bond connections with mainland markets. Mainland investors now contribute 5 to 10 per cent of daily transactions on the Hong Kong stock exchange, according to market data.
A plan for a “wealth management connect” initiative was unveiled in June to allow cross-border investment in fund products, although no tentative launch date has been announced as details are still being worked out.
The plan for an “ETF Connect” was shelved in 2018. Tim Lui Tim-leung, the SFC‘s chairman, said at the time differences in trading and settlement mechanisms between Hong Kong and China were to blame.
Hong Kong’s ETF market will grow in importance, Hong Kong Exchange and Clearing chief executive Charles Li Xiaojia told a webinar with the South China Morning Post on Friday.
“ETFs are an important part of our business, but they have not played as prominent a role relative to other products compared to the US market,” he said. “It will become more important, but we will be watching what goes on in the US, take lessons and then adjust.”
More from South China Morning Post:
- Hong Kong-China ETF Connect back in the frame, as talks resume between market regulators
- Launch of ETF Connect expected in second half of 2018, Hong Kong bankers’ seminar hears
- Hong Kong shelves ETF Connect scheme with China due to ‘technical issues’, says SFC chairman
- Hong Kong wealth managers can’t wait for new Connect programme, with Singapore ready to pounce on city’s troubles