Exchange trade future for China

THE China Securities Regulatory Commission is vetting an application from E Fund Management to start the mainland's first exchange-traded fund tracking the Hong Kong-listed shares of Chinese companies.

By InvestSMART · 15 Feb 2012

By InvestSMART ·
15 Feb 2012

Comments

The application for the fund linked to the Hang Seng China Enterprises Index was accepted on February 8.

E Fund, based in the southern city of Guangzhou, is China's third-largest asset management company, with 126.2 billion yuan ($A18.7 billion) of assets.

Introducing new products may help bolster stock-trading turnover in China that has fallen to three-year lows as the economy slows.

The exchange-traded fund linked to Hong Kong stocks was part of a range of measures unveiled by Vice-Premier Li Keqiang last year, to increase cross-border investment between the mainland and the former British colony.

"It will be China's first ETF fund investing in Hong Kong's stockmarkets," Lu Huitian, an analyst at Howbuy, said.

"Mainland investors will have more investment options as ETFs are very convenient for them to buy and sell, while it's also definitely a boost to Hong Kong stocks."

Hang Seng Indexes Company had been working with two fund management companies to create funds tracking Hong Kong stocks that would trade in China.

China is seeking to bolster its financial markets as growth in its economy cools and foreign investment moderates.

Go to Google News, then click "Follow" button to add us.

Share this article and show your support

Frequently Asked Questions about this Article…

What ETF application is the China Securities Regulatory Commission currently vetting?

The China Securities Regulatory Commission is vetting an application from E Fund Management to launch the mainland's first exchange-traded fund that tracks Hong Kong-listed shares of Chinese companies. The proposed ETF would be linked to the Hang Seng China Enterprises Index and the application was accepted for review on February 8.

Who is E Fund Management and why does its ETF proposal matter to investors?

E Fund Management is a Guangzhou-based asset manager and China’s third-largest, with about 126.2 billion yuan in assets. Its proposal matters because it aims to create the first mainland-traded ETF providing direct exposure to Hong Kong stocks, expanding investment choices for mainland investors.

Which index would the new ETF track and what exposure would that give investors?

The ETF would track the Hang Seng China Enterprises Index, which represents Hong Kong-listed shares of Chinese companies. That gives investors mainland access to the performance of major Chinese firms listed in Hong Kong through a single, tradable ETF product.

How could a mainland ETF linked to Hong Kong stocks affect mainland investors' access?

A mainland-listed ETF tracking Hong Kong stocks would make it easier and more convenient for mainland investors to buy and sell Hong Kong exposure via their domestic market, increasing investment options without needing cross-border trading accounts.

Will this ETF proposal help boost stock-trading turnover in China?

Potentially yes. The article notes that introducing new products like ETFs may help bolster stock-trading turnover in China, which has fallen to three-year lows amid slower economic growth.

How might Hong Kong stocks benefit if the mainland launches ETFs that track them?

Industry commentary in the article suggests mainland ETFs would be a boost to Hong Kong stocks by creating additional demand from mainland investors who can more easily access Hong Kong-listed companies through ETFs.

Who else is working on mainland-traded funds linked to Hong Kong stocks?

The Hang Seng Indexes Company has been working with two fund management firms to create funds that would track Hong Kong stocks and trade in China, as part of broader efforts to increase cross-border investment links.

How does this ETF proposal fit into broader Chinese policy on cross-border investment?

The ETF is part of a range of measures unveiled to increase cross-border investment between the mainland and Hong Kong — measures promoted by leaders including Vice‑Premier Li Keqiang to support financial-market development as economic growth cools and foreign investment moderates.