CSRC nods HK share-related ETF trading on the mainland

The exchange-traded funds (ETFs) that track the Hong Kong share indexes might be launched in the mainland bourse at the end of June, a senior official from the China Securities Regulatory Commission (CSRC) said.

Speaking to the Hong Kong media tour group in Beijing, CSRC Vice Chairman Yao Gang said that the CSRC may finish all the approval processes this year and CSRC hoped that ETFs trading can commence at the end of June.

"As ETFs trading involves trading in the mainland bourse, so it requires more stringent security standards in the mainland share trading system to ensure smooth ETF transactions. Both the mainland and Hong Kong financial regulatory bodies are more stringent in the approval process of the ETFs products compared to other financial products," Yao told reporters in Beijing.

An ETF is a security product that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. ETF experiences price changes like share trading as they are bought and sold throughout the day.

The prospect of the so-called "Hong Kong stock through-train", that is allowing mainland investors to invest in Hong Kong shares directly, has been the one of the factors that pushed up local share prices in the 2006-2007 stock bull market. However, the central government soon denied there will be such a policy in order to cool down market sentiment.

Since then, the local market hoped that any form of local share-related ETF listing on the mainland will help bolster market sentiment in Hong Kong. But hopes are always in vain until Vice-Premier Li Keqiang said that the mainland financial regulatory may allow the listing of the Hong Kong share-related ETFs on the mainland bourse during his visit in the city in last August.

Financial analysts generally welcomed the listing of ETFs that track the Hong Kong market share indexes on the mainland market, saying that it will spur capital inflows that will drive up share prices in the local bourse.

"The news will attract hot money into local stock market whereas the share prices of those blue-chip stocks will raise more," CCB International managing director Peter So told China Daily.

"If those mainland investors are interested in Hong Kong shares but do not have sufficient time to study those shares, they might be interested in investing these ETFs that track the price of the local share indexes," So added.

"The new policy will generally enhance the mainland investor demand for local shares and hence will improve the market sentiment of the local stock market," So said.

Martin Wong, an equity derivatives director at Rabobank International, said that the Hang Seng Index (HSI) constituent shares will first benefit from the new policy initiative.

‘It is widely expected that those ETFs that track the HSI price movement will be the first batch of ETFs that will be listed on the mainland stock exchanges. Hence, those HSI constituent shares will be popular for the mainland ETF fund managers to manage the portfolios of those listed ETFs," Wong told China Daily.

Looking ahead, whether the listing of ETFs that track the HSI price movement will elicit more mainland investor demand depends on the future market development.

"If the mainland ETF fund managers can devise some ETF fund products that can be linked with those shares of international resources firms, luxury brands or financial institutions that currently are not listed on the mainland, this would provoke their interests in investing these ETF products," Wong added.

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