After securing a quota through the tightly regulated foreign investment program, Hong Kong-based Hang Seng Bank is planning to launch its first China A-shares exchange traded fund.
Hang Seng received a renminbi qualified foreign institutional investor (RQFII) quota of 1 billion yuan, or $163.4 million, reports Kanis Li for South China Morning Post. The ETF would track the Hang Seng China A Industry Top Index, which differs from other blue-chip indices in that it also selects components based on fundamental factors. [A Fundamental Approach to China ETFs]
Through the QFII system, foreign investors are able to access Chinese A-shares, which trade on the Shanghai Stock Exchange and the Shenzen Stock Exchange and are typically only available to mainland citizens. A-shares are also only quoted in the Chinese renminbi currency.
Bank of China Hong Kong, HSBC and Bank of East Asia have also acquired RFII licenses but have not revealed plans to launch products.
The Chinese government stated that it will expand the RQFII system to companies in London, Singapore and Taiwan.
The RQFII system also helps generate a greater yuan liquidity pool.
“You can always say people can trade Hong Kong shares in New York, just like ADRs [American depositary receipts], but it’s much less liquid than Hong Kong. It is the same thing [in RQFII],” Hang Seng executive director Andrew Fung Hau-chung said in the article.
Since mainland China-listed A-Shares that trade on in Shanghai and Shenzhen are not accessible to most foreign investors, people would typically gain exposure to Chinese equities through China index funds that invest in Chinese companies listed in Hong Kong or New York.
However, investors can take a look at the Market Vectors China ETF (NYSEArca: PEK), which is the only U.S.-listed ETF that provides access to China A-shares.
For more information on China, visit our China category.
Max Chen contributed to this article.