HKEX, SZSE Launch ‘ETF Connect’ With Four New Listings

HKEX and SZSE have also signed an MOU to promote the ETF Cross-listing Scheme and facilitate more connections between the two markets.

HKEX (Hong Kong Exchanges and Clearing) on Friday (23 October) announced the first listings of ETFs in Hong Kong and Shenzhen under the new ETF Cross-listing Scheme.

All four ETFs were authorised in August – at least four years after the plan to launch an ‘ETF Connect’ was first proposed – under a scheme that allows Hong Kong investors to trade Shenzhen-listed ETFs through a feeder fund that mirrors their performance, and vice versa.

The two new ‘feeder’ ETFs listed in Hong Kong will each invest 90 percent or more of their total NAV in an ETF listed on the SZSE (Shenzhen Stock Exchange) through the RQFII programme. One is managed by Hang Seng Investment Management, tracking the CSI 300, while the other is managed by CSOP Asset Management, tracking a gauge of China’s 5G companies.

Meanwhile, the two new ETFs listed in Shenzhen will track the Hang Seng China Enterprises Index and the S&P New China Sectors Index, each investing 90 percent or more of their total NAV in the Hong Kong listed ETF through the QDII programme. They are managed by Harvest Fund Management and Yinhua Fund Management, respectively.

“The [ETF Cross-Listing] Scheme facilitates access to new but established pools of liquidity and offers broader investment opportunities in both markets,” said HKEX Chief Executive Charles Li.

“This development is the result of our ongoing commitment to make Hong Kong Asia’s leading ETF marketplace, and represents an important step forward in our continued work with the onshore Chinese exchanges, and our regulators, to deliver a successful ETF Connect.”

According to Bloomberg, existing ETFs in Hong Kong, London and New York that track China’s onshore equity market have tracking error rates as high as 15 percent, in part due to a 30 percent limit on foreign ownership of yuan-denominated shares.

The new feeder ETFs will be able to better replicate mainland benchmarks because their providers are local and not subject to the foreign ownership cap.

Celebrating the launch of the four new ETF listings, HKEX and SZSE on Friday also signed an MOU to promote the ETF Cross-listing Scheme and facilitate more connections between the two markets.

“The signing of the MOU is an important step forward in building valuable financial connections within the Greater Bay Area,” Li said.