ETFs
A back door for China? Hong Kong crypto ETFs attract interest from mainland investors via Stock Connect
(Kitco News) – Even before the launch of multi-spot Bitcoin (BTC) and Ethereum (ETH) exchange-traded funds (ETFs) in Hong Kong, many analysts have speculated that the move will be used as a backdoor to allow Chinese investors to re-engage in crypto markets despite the ban on all regarding cryptography in China.
This speculation has since been confirmed by Han Tongli, CEO and chief investment officer of Harvest Global Investments, who said The South China Morning Post that the company “does not rule out” requesting that its ETFs that invest directly in crypto tokens be included in the connection program that links exchanges in mainland China and Hong Kong, provided that “any goes well and well” over the next two years.
Harvest is a Chinese fund company and one of three issuers of Bitcoin and Ether ETFs in Hong Kong, and according to Tongli, the company is already looking to offer Chinese citizens access to products through the Hong Kong ETF Connect framework .
“We expect Bitcoin and Ethereum ETFs to reach investors in China,” Tongli said. “If we, as Harvest Global, succeed in integrating BTC-ETH spot ETFs into the Stock Connect program, a new investment avenue will be opened for investors in mainland China.”
“Given that the regulatory environment on the continent is quite uncertain, the Stock Connect program could be a pioneer in regulating cryptocurrency investments, particularly Bitcoin and Ethereum,” he added.
ETF Connect was launched in May 2022 and offers mainland investors access to a select range of ETFs listed on the Hong Kong market. The program is part of the wider Stock Connect program launched in 2014 and linking the Hong Kong and Shanghai stock exchanges.
Data provided by Farside shows that the six newly launched ETFs in Hong Kong started with seed funding of $292.7 million when they launched on May 2 and have since generated an additional $24.7 million in inflows.
The inclusion of these ETFs in the Connect program could strengthen market confidence by providing access to a new pool of investors willing to invest in assets capable of maintaining their value in the context of Chinese economic difficulties, notably a declining real estate market.
However, whether the assets will be permitted or not remains unresolved as the Bitcoin and Ether futures ETFs launched in Hong Kong in 2022 have not yet been included in the Stock Connect program.
“People are still skeptical about Hong Kong’s status as a special country [administrative] region,” Tongli said during a Bitcoin Asia panel discussion. “It’s located in China…and a lot of people don’t want to see Hong Kong become more successful, for whatever reason.”
That said, Tongli remains optimistic about the long-term potential of the Hong Kong market, which he says is a very attractive “more neutral” region in Asia. Once adoption accelerates, he suggested that local crypto ETFs could grow to double the size of U.S. products, but did not offer a timetable for that to happen.
He said much depends on when Hong Kong manages to establish a comprehensive virtual asset ecosystem, but the city has “sown a seed” by launching the ETFs. Eventually, Tongli said he sees other products like stablecoins receiving regulatory approval and being launched into the market.
For now, Harvest is working to make its spot crypto ETFs the top products in Hong Kong in terms of trading volume by the end of the year, ahead of the launch of collateralized financial products based on the ETFs , Tongli said.
So far, the Bosera HashKey Bitcoin and Ether spot ETFs have been the best performers, seeing net inflows of $15.2 million and $8.1 million, respectively, since their launch, in addition to funding startup of $61.1 million and $12.3 million, respectively, according to data provided by Farside.
The ETFs offered by China Asset Management Company (ChinaAMC) had the largest seed funding, with the ChinaAMC Bitcoin ETF starting at $123.6 million in assets under management (AUM), while the ChinaAMC Ether ETF starting with $20.2 in assets under management.
Speculation about Chinese investors’ access to Hong Kong ETFs was already circulating before Tongli’s comments on Thursday, along with SYZ Capital chief executive Richard Byworth. narrative his X subscribers on May 1 that he “has just returned from Hong Kong”, where “there is [was] It is said that the ETF could be added to Stock Connect.
“The implications of this are absolutely huge (it basically means mainland money can buy it),” Byworth added.
Brian HoonJong Paik, co-founder and COO at SmashFi, replied “It’s just a matter of time. 70% of China’s wealth is in real estate and there are now 100 million empty homes. The CCP needs an alternative asset to alleviate social unrest.
On April 15, Paik willing why he thinks Chinese investors will inevitably have access to ETFs.
Citing the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect programs, he noted that they “enable investors from mainland China and Hong Kong to trade stocks in their respective markets through their stock exchange companies.” securities or local brokers,” adding that “the Stock Connect program covers a wide range of securities, but it is subject to a daily quota.
Another factor is the “Qualified National Institutional Investment (QDII) Program”, which “allows qualified Chinese institutional investors (such as banks, funds and insurance companies) to invest in overseas markets, including including Hong Kong. This program also helps diversify their investment strategies,” he said.
“Chinese residents can also invest in Hong Kong stocks through brokerage firms that have the right to operate in both markets,” Paik noted. “These companies often offer services to help individuals comply with regulatory requirements for foreign investments. »
There is also a “Mutual Fund Recognition (MRF)” program between Hong Kong and Mainland China which “allows eligible funds from Mainland China and Hong Kong to be distributed to their respective markets through a streamlined process”, did he declare.
“These mechanisms make the Hong Kong stock exchange one of the most accessible overseas markets for Chinese investors, promoting financial integration between the mainland and Hong Kong,” Paik concluded. “Excluding just the Bitcoin ETF would likely result in significant repercussions among institutional and retail investors in China and Hong Kong.”
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