ETFs
Hong Kong and mainland China exchanges add 91 ETFs to Stock Connect program
More than 90 new exchange-traded funds (ETFs) will be eligible for trading under the expanded Stock Connect cross-border program later this month, giving investors more trading options, according to separate announcements from the Hong Kong and mainland Chinese stock exchanges on Friday.
The Shanghai, Shenzhen and Hong Kong exchanges added 85 ETFs for northbound trading and six for southbound trading, after average asset management sizes and index weights were reduced in April to improve the mutual market access program.
The expanded list of ETFs under Stock Connect will come into effect on July 22. It will be in addition to the existing 141 ETFs in the North Channel, which allows foreign investors to buy A-shares listed in mainland China. A total of 10 ETFs are in the existing South Channel, which allows mainland Chinese investors to buy some Hong Kong-listed companies.
The latest improvement is expected to help investors diversify their assets and add liquidity to financial markets in Hong Kong and mainland China. It is also part of five measures announced by the China Securities Regulatory Commission in April to strengthen ties between the two markets and boost Hong Kong’s status as a global financial centre.
Since ETFs were added to Stock Connect in 2022, exchanges on both sides have been regularly reviewing and adjusting eligible ETFs. According to industry estimates, investors currently hold about 1.58 trillion yuan (US$218 billion) through the northbound ETF trading channel, while they hold 200 billion yuan through the southbound ETF channel.
The latest expansion “will further enrich product choices for domestic and foreign investors, help attract more funds to the two countries’ financial markets and benefit the long-term development of the market,” Financial Secretary Paul Chan Mo-po said at a meeting earlier this week to commemorate another connection program – the seventh anniversary of Bond Connect.
“Development towards the south [under ETF Connect] “Growth is relatively slow,” said Albert Wang, head of financial markets and chief investment officer of Ping An of China Asset Management (Hong Kong).
He said including more ETFs in government-backed channels could boost overall holdings and product innovation. Ping An’s ETF, which tracks the CSI Hong Kong Dividend Index, was included in the latest list.
ChinaAMC listed its cryptocurrency ETF on the Hong Kong Stock Exchange on April 30, 2024. Photo: Bloomberg
“This expansion will further enhance the investment options available to investors, allowing them to better diversify their portfolios,” said Max Lan, head of ETF investment at ChinaAMC (HK), whose ETF tracking the Hang Seng Hong Kong Biotech Index was included in the latest list.
Lan said ChinaAMC is interested in the growing number of biotech companies choosing Hong Kong as their preferred listing venue. “The biotech ETF offers a highly efficient and cost-effective way to diversify a portfolio, giving investors exposure to the strong growth potential of the biotech sector,” he said.
ETFs have become popular investment products around the world due to lower costs and ease of trading. China, in particular, has used ETFs as a key channel for state-backed funds to support the market. Inflows into ETFs linked to the underlying CSI indices of small- and large-cap stocks have spiked since the beginning of this year.
“ETFs are important market tools with many advantages,” Ping An’s Wang said. [ETF] market needs [more] “Varied product types, abundant transaction volumes and a broad investor base to actively participate.”