China has tightly regulated its financial markets to prevent outside speculators from influencing its markets. However, China has approved mutual access to exchange traded fund products in Hong Kong and mainland stock exchanges, loosening capital markets to foreign exposure.
“The SFC welcomes the China Securities Regulatory Commission’s approval today of two ETFs to be listed on the Shanghai and Shenzhen stock exchanges that will invest directly in Hong Kong-listed stocks, each tracking a Hong Kong stock index,” Hong Kong’s Securities and Futures Commission said, report Lee Chyen Yee and Pete Sweeney for Reuters. [China May Launch Hong Kong ETFs This Summer]
On the mainland, E Fund Management will provide an ETF to track the Hang Seng China Enterprise Index, which will be listed on the Shanghai exchange. China Asset Management will provide a similar fund that tracks the Hang Seng Index, which will trade on the Shenzhen exchange.
In Hong Kong, the SFC has authorized listing the first Renminbi Qualified Foreign Institutional Investor (RQFII) A-Share ETFs – the ETFs are denominated in Chinese yuan, reflect mainland indices and trade in Hong Kong.
A-shares are stocks of mainland China-based companies traded on the Chinese exchanges and are usually only available to mainland citizens; however, some foreign investors may gain access through the Qualified Foreign Institutional Investors program.
Still, market observers are less enthusiastic about the new offerings.
“We think that these ETFs will not see that much demand from investors. If you look at the correlation between domestic and Hong Kong market performance, it’s very high, plus a lot of companies listed in Hong Kong are Chinese anyway,” Winnie Deng, analyst at Z-Ben Advisors, said in the report. “Also everybody is getting out of equities, so investors will probably not will be there to support the launch of the first two funds.”
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Max Chen contributed to this article.