China, Hong Kong in cross-border trade of exchange-traded funds
China has approved mutual listings of exchange-traded funds on Hong Kong and mainland exchanges.
Having the new type of ETFs available will "broaden the range of renminbi investment products in Hong Kong, offering Hong Kong investors an alternative channel to invest in the A-share market," said Mrs Alexa Lam, deputy chief executive officer and executive director of policy, China and investment products, of Hong Kong's Securities and Futures Commission .
Chinese fund managers have been preparing for the launch of cross-border ETFs for years, but some analysts said that the impact of cross-border ETFs may be limited initially as many Chinese investors remain wary about overseas investment after the 2008-2009 financial crisis,.
"We think that these ETFs will not see that much demand from investors. If you look at the correlation between domestic and Hong Kong market performance, it's very high, plus a lot of companies listed in Hong Kong are Chinese anyway," said Winnie Deng, analyst at Z-Ben Advisors, which covers the offshore yuan fund market.
"Also everybody is getting out of equities, so investors will probably not will be there to support the launch of the first two funds," she added.
"The SFC welcomes the China Securities Regulatory Commission's approval today of two ETFs to be listed on the Shanghai and Shenzhen stock exchanges that will invest directly in Hong Kong-listed stocks, each tracking a Hong Kong stock index," the SFC said.
The newly approved products are likely make purchases of overseas stocks and bonds more liquid because ETFs can be traded on Chinese bourses much like stocks.
Chinese investors can already buy overseas stocks and bonds through funds available under the Qualified Domestic Institutional Investor programme.
The new products are part of the QDII programme,
Two fund management companies have been approved by the CSRC to create funds to track Hong Kong indexes.
E Fund Management Co will launch an ETF that tracks the Hang Seng China Enterprises Index, to be listed on the Shanghai stock exchange.
China Asset Management Co will launch a similar product that tracks the Hang Seng Index, to trade on the Shenzhen exchange.
The SFC also said it had authorised listing in Hong Kong of the first Renminbi Qualified Foreign Institutional Investor A-share ETFs, yuan-denominated products that will track mainland indexes and trade in Hong Kong.
At present, applications are capped at $1 billion per fund, but fund management companies have been hoping
Beijing radically increases the cap to around $5 billion, Deng said.