ETF CONNECT SET FOR JULY 4 LAUNCH

New scheme will allow investors to trade 83 mainland-listed and four HK exchange-traded funds

The inclusion of exchange-traded funds (ETFs) in the Stock Connects linking markets in Shanghai and Shenzhen with Hong Kong will kick off on July 4, according to a joint statement by Hong Kong and mainland regulators yesterday.

The announcement, which comes before the July 1 anniversary celebrating 25 years of Hong Kong’s handover to China, is expected to strengthen the city’s role as a connector between the mainland and the rest of the world.

“The ETF Connect is an important milestone because for the first time the Stock Connect is expanded beyond stock trading,” Securities and Futures Commission (SFC) chief executive Ashley Alder said as he announced the launch date of the scheme.

“It will catalyse Hong Kong’s growth as an ETF hub and underscore Hong Kong’s unique role connecting global capital with the mainland.”

The SFC and the China Securities Regulatory Commission (CSRC) have agreed on arrangements for cross-border cooperation and investor education on the inclusion of ETFs in the Stock Connect and will enhance collaboration on enforcement against cross-border illegal activities and misconduct to maintain an orderly market.

Bourse operator Hong Kong Exchanges and Clearing (HKEX) announced an initial list of 83 mainland-listed ETFs – 53 in Shanghai and 30 in Shenzhen – that can be traded by international investors. These include funds tracking the CSI300 and the ChiNext indices.

The Shanghai and Shenzhen exchanges said four Hong Konglisted ETFs could be traded initially, including the Tracker Fund, HSCEI ETF, CSOP HS Tech and iShares Tech.

“The inclusion of ETFs in the Stock Connect will be mutually beneficial to both the mainland and Hong Kong capital markets. It will support the continued sustainable growth of both at a time when participants and customers are demanding ever more and better connectivity,” HKEX chief executive Nicolas Aguzin said.

The scheme is being viewed as “a gift” by Beijing to Hong Kong on the anniversary of its handover. The CSRC and the SFC reached an in-principle agreement on the inclusion in May.

“The announcement of the launch of the ETF Connect could be considered as a handover gift by the central government with the purpose of [further] integrating the Hong Kong and mainland financial markets,” said Robert Lee Wai-wang, a lawmaker for the financial services sector.

Under the scheme, qualifying ETFs listed in Hong Kong will be added to the Stock Connects for mainland investors to trade in. Similarly, those on the Shanghai and Shenzhen markets will be added for international investors to trade in.

Beijing had introduced the new cross-border trading scheme as a handover gift to Hong Kong, said Stephen Hui Chiu-chung, chief executive of Luk Fook Financial Services.

The ETF Connect follows the northbound Bond Connect started in July 2017 and the Wealth Management Connect last year.

“It shows the country wants Hong Kong to have more crossborder trading mechanisms with the mainland,” Hui said.

“All markets in Hong Kong, Shanghai and Shenzhen will benefit from the new scheme as it will offer more products for investors to trade in.”

Financial Secretary Paul Chan Mo-po said at the time of the agreement in May the ETF Connect would promote liquidity and the sustainable development of ETF markets on both sides of the border.

ETFs on the mainland will need to maintain daily average assets under management of 1.5 billion yuan (HK$1.8 billion) over the previous six months, with their components mostly listed in Shanghai and Shenzhen.

Those in Hong Kong will need to have daily average assets under management of at least HK$1.7 billion, with their underlying assets listed in the city.

All markets in Hong Kong, Shanghai and Shenzhen will benefit from the new scheme

STEPHEN HUI, LUK FOOK FINANCIAL