It wasn’t long ago that China approved its domestic, individual retail investors to directly invest in Hong Kong’s stock exchange, causing Hong Kong and Chinese exchange traded funds (ETFs) to increase. However, recently the Chairman of the China Banking Regulatory Commission (CBRC) has been talking about changing that decision to include quotas on how many people can invest in the Hong Kong market. The Chinese central bank and securities regulators are becoming concerned that the opening to Hong Kong’s stock exchange might hurt local markets. If an avalanche of money comes into H shares (Hong Kong shares), it could hurt domestic Chinese A shares that are only available to Chinese investors, says Carl Delfeld for ETF XRAY.

Adding to the concern is that if the market were completely open, the majority of investors would invest in Hong Kong because it’s a cheaper market. If restrictions and quotas are placed on investments into the Hong Kong market, how will the Hong Kong and Chinese ETFs be affected?

Today, high commodity prices helped boost Chinese stocks in Shanghai and Hong Kong to new records, reports the Associated Press. Year-to-date, the Chinese and Hong Kong ETFs are:

  • iShares MSCI Hong Kong Index (EWH) – up 28.7%
  • iShares FTSE/Xinhua China 25 Index (FXI) – up 51.2%
  • PowerShares Golden Dragon Halter USX China (PGJ) – up 48.9%
  • SPDR S&P China (GXC) – up 30.2% for the last three months, having launched in March

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.