ETF con­nect

Ex­perts bank on pos­si­ble launch to cash in on growth of ETF mar­kets

China Daily (Hong Kong) - - FRONT PAGE - By DUAN TING in Hong Kong tingduan@chi­nadai­lyhk.com

Mon­day ’s kick-off of the Shen­zhen-Hong Kong Stock Con­nect has pushed the in­clu­sion of ex­change-traded funds (ETFs) in the mutual mar­ket mech­a­nism one step closer to re­al­ity, with mar­ket ex­perts pre­dict­ing it could hap­pen as early as next year.

The pos­si­ble launch of the in­vest­ment fund in the mutual mar­ket mech­a­nism is likely to at­tract more in­vestors from the Chi­nese main­land and in­ject liq­uid­ity into Hong Kong’s eq­uity mar­ket in the long term.

C harles Li Xiao­jia, chief ex e c u t i v e o f Ho n g Ko n g Ex­changes and Clear­ing Ltd, said at the launch of the sec­ond stocks “through train” be­tween Hong Kong and the main­land on Mon­day that ETFs would be among a se­ries of other fi­nan­cial roll­outs to fol­low, in­clud­ing bonds and com­modi­ties.

ETFs — one of the most sought-af­ter prod­ucts of fund man­agers world­wide — are seen as one of the most im­por­tant de­vel­op­ments for in­vestors and the in­dustr y in decades. The pro­lif­er­a­tion of ETFs stems from the fact that the y of­fer in­vestors a cost-ef­fi­cient way to track an en­tire in­dex, such as those in ma­jor emerg­ing mar­kets or for com­modi­ties around the globe, and reap the ben­e­fits in just one go.

Ac­cord­ing to Li, reg­u­la­tors on both sides had dis­cussed a pos­si­ble ETFs-trad­ing link as early as Au­gust, although de­tails have yet to be worked out. Reg­u­la­tors are study­ing is­sues con­cern­ing the pur­chase and re­demp­tion mech­a­nism, and prepara­tory work has been in­tense.

Ac­cord­ing to French in­vest­ment bank Credit Agri­cole CIB, Asian ETF mar­kets have seen a stag­ger­ing 380 -per­cent growth in the past five years, with as­sets un­der man­age­ment swelling to $313.9 bil­lion from $83.5 bil­lion in 2010. As of Septem­ber this year, net cap­i­tal in­flow into Asian ETF mar­kets had reached $35.8 bil­lion — up 190 per­cent from 2014.

Alvin Li, ETF strate­gist at CSOP As­set Man­age­ment Ltd, said Hong Kong is an ideal place for as­set al­lo­ca­tion, and the pos­si­ble in­clu­sion of ETFs will surely pro­vide more di­verse as­set prod­ucts to meet the large al­lo­ca­tion de­mand of main­land in­vestors and make in­vestors more aware of other mar­kets.

He said a pos­si­ble ETF con­nect would en­able in­vestors to ap­proach A-share sec­tor ETFs and mone y marke t funds on the main­land and al­low main­land in­vestors to reach large- and small-cap ETFs, oil and gold ETFs, as well as some over­seas S&P, Nas­daq ETFs through Hong Kong.

On the other hand, it will cre­ate com­pe­ti­tion among ETF prod­ucts and com­pa­nies.

On Thurs­day, a new ETF prod­uct — CSOP S&P New China Sec­tors ETF — went pu b l i c o n th e Ho n g Ko n g bourse, pro­vid­ing ex­po­sure to com­pa­nies that ben­e­fit from the main­land’s con­sump­tion­driven growth.

Alvin Li be­lieves that in­clud­ing ETFs in the mutual-trad­ing link will un­lock

In­clud­ing ETFs in the mutual-trad­ing link will un­lock the growth of ETFs track­ing China’s new econ­omy sec­tors.” in­crease in the net cap­i­tal in­flow into Asian ETF mar­kets as of Septem­ber from 2014 surge in the value of Asian ETF mar­kets since 2010

the growth of ETFs track­ing China’s new econ­omy sec­tors.

The newly launched stocks trad­ing link saw nearly 14 per­cent of the daily north­bound quota of 13 bil­lion yuan ($1.9 bil­lion) be­ing snapped up on Thurs­day, with less than 10 per­cent of the daily south­bound quota of 10.5 bil­lion yuan used.

Fo r th e Sh a n g h a i - Ho n g Kong Stock Con­nect, just 5 per­cent of the daily north­bound quota was used on Th u r s d ay, wh i l e th e da i l y south­bound in­vest­ment saw net sales of 2.25 bil­lion yuan.

Hong Kong’s bench­mark Hang Seng jumped 0.27 per­cent to close at 22,861.84 points on Thurs­day, while the Hang Seng China En­ter­prises In­dex gained 0.68 per­cent to 9,896.82.

JUSTIN CHIN / BLOOMBERG

The kick-off of the sec­ond stocks-trad­ing link has prompted talk of the in­clu­sion of ex­change-traded funds (ETFs) in the mutual mar­ket mech­a­nism. Ex­perts be­lieve a pos­si­ble ETFs-trad­ing link will at­tract more in­vestors from the Chi­nese main­land and in­ject liq­uid­ity into Hong Kong’s eq­uity mar­ket in the long term.

Alvin Li, ETF strate­gist at CSOP As­set Man­age­ment Ltd

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