SHANGHAI/HONG KONG- Investors in China and Hong Kong started trading exchange-traded funds (ETF) in each other’s markets on Monday, but the benefits of the newly-launched ETF Connect are sharply skewed toward Chinese fund managers, fueling calls to address the imbalance.
Under the cross-border investment scheme, eligible China-listed ETFs far outnumber their Hong Kong-listed peers, and the industry is hoping that regulators will gradually relax rules for Hong Kong funds.
The inclusion of ETFs into mainland-Hong Kong Stock Connect came days after the 25th anniversary of the handover of Hong Kong to Chinese rule, on July 1. The scheme represents China’s latest step to open up its capital markets, and promote financial integration.
But with just four Hong Kong-listed ETFs qualified – compared with 83 eligible products traded in Shanghai and Shenzhen – the benefits are sharply skewed toward Chinese fund managers who have so much more product to offer investors.
“During the initial stage, ETFs that invest in China’s A shares would benefit more,” said Luo Guoqing, head of index investing at GF Fund Management, which runs 12 eligible products.
China’s 1 trillion yuan ($149.25 billion) ETF market is much bigger, and more liquid than Hong Kong’s, and is much more focused on local markets, giving mainland money managers an edge under current eligibility rules.
As a result, only four Hong Kong-listed ETFs – the Tracker Fund, the HSCEI ETF, the CSOP HS TECH Index ETF and the iShares HS TECH ETF – were included in ETF Connect, which require eligible ETFs to have heavy exposure in locally-listed stocks.
