Hong Kong and mainland Chinese exchanges add 91 ETFs to Stock Connect scheme

More than 90 new exchange-traded funds (ETFs) will be eligible to trade under the expanded cross border Stock Connect programme later this month, giving investors more trading options, according to separate announcements by bourses in Hong Kong and mainland China on Friday.

The Shanghai, Shenzhen and Hong Kong stock exchanges added 85 ETFs for northbound trading and six in the southbound direction, after average asset management sizes and index weightings were lowered in April to enhance the mutual market access programme.

The expanded ETF list under Stock Connect will take effect on July 22. This will add to the existing 141 ETFs in the northbound channel, which allows foreign investors to buy mainland-listed A shares. A total of 10 ETFs are in the existing southbound channel, which allows investors in mainland China to buy select companies listed in Hong Kong.

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The latest enhancement is expected to help investors diversify their assets and add liquidity to the capital markets across Hong Kong and mainland China. It is also part of the five measures announced by the China Securities Regulatory Commission in April to strengthen ties between the two markets and boost Hong Kong's status as a global financial hub.

Since ETFs were added to Stock Connect in 2022, exchanges on both sides have regularly reviewed and adjusted eligible ETFs. According to industry estimates, investors currently hold around 1.58 trillion yuan (US$218 billion) via the northbound ETF trading channel while taking up 200 billion yuan through the southbound ETF channel.

The latest expansion will further "enrich the product choices for domestic and foreign investors, help attract more funds to flow into the capital markets of the two places and benefit the long-term development of the market", Financial Secretary Paul Chan Mo-po said at a meeting earlier this week to commemorate another connect scheme - Bond Connect's seventh anniversary.

"Southbound development [under ETF Connect] is relatively slow," said Albert Wang, head of capital markets and chief investment officer of Ping An of China Asset Management (Hong Kong).

He said that including more ETFs in the government-supported channels could boost overall holdings and product innovation. Ping An's ETF, which tracks the CSI Hong Kong Dividend Index, has been included in the latest list.

ChinaAMC listed its cryptocurrency ETF on the Hong Kong stock exchange on April 30, 2024. Photo: Bloomberg alt=ChinaAMC listed its cryptocurrency ETF on the Hong Kong stock exchange on April 30, 2024. Photo: Bloomberg>

"This expansion will further enhance the investment options available to investors, allowing them to better diversify their portfolios," said Max Lan, head of ETF investment at ChinaAMC (HK), whose ETF tracking the Hang Seng Hong Kong Biotech Index has been included in the latest list.

ChinaAMC is eyeing the growing number of biotechnology companies picking Hong Kong as their preferred listing venue, according to Lan. "The biotech ETF offers a highly efficient and cost-effective means of portfolio diversification, providing investors with exposure to the high growth potential of the biotechnology sector," he said.

ETFs have become popular investment products globally thanks to lower costs and convenience in trading. China, in particular, has used ETFs as a key channel for state-backed funds to prop up the market. Inflows into ETFs linked to the underlying CSI indices of small and big-capitalisation stocks have seen spikes since early this year.

"ETFs are important market tools with many advantages," said Ping An's Wang. "The [ETF] market needs [more] product types, abundant transaction volumes and expanded investor base to participate actively."

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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