ETFs to track HK indices coming

PUBLISHED : Saturday, 16 June, 2012, 12:00am
UPDATED : Saturday, 16 June, 2012, 12:00am

The mainland is expected to launch exchange-traded funds (ETFs) that track the performance of Hong Kong stock indices this year.

It would be the first product that would allow indirect trading of the city's equities by mainland investors.

Yao Gang, vice-chairman of the China Securities Regulatory Commission (CSRC), said the introduction of such ETFs this year should not be a problem.

Analysts said the introduction of the long-awaited ETFs could create arbitrage profit opportunities for investors and brokerages and help reduce the price disparity between the shares of a company listed in Hong Kong and on the mainland.

Yao said the regulator was also working on arrangements to allow provincial pension funds to invest in the mainland stock market to help the funds pursue higher returns.

The National Council for Social Security Fund said it realised a 0.84 per cent return on the 868.8 billion yuan (HK$1.06 trillion) of assets under its management last year, much lower than the average annual return of 8.4 per cent since its inception in 2000. About 32 per cent of its investments were in stocks at the end of last year.

'Both mainland and Hong Kong regulators are dealing with applications to set up ETFs tracking indices in the two markets,' Yao said.

ETFs under consideration include one tracking the Hang Seng Index, jointly designed by China Asset Management and the Shenzhen Stock Exchange, and a fund tracking the Hang Seng China Enterprises Index from E Fund Management and the Shanghai Stock Exchange.

'It is not clear how much the ETFs could help narrow or bridge the gap between the prices of A shares and H shares,' Haitong Securities analyst Zhang Qi said. The A shares of dual-listed Chinese companies are now trading at an average 13 per cent premium to their H shares.

'It has been a long delay for investors keen to use the new investment tool for arbitrage. The regulators must take concrete steps to launch it as soon as possible before gauging investors' real buying interest.'

Hong Kong Exchanges and Clearing proposed launching the derivatives in January 2009, but it took more than three years for the mainland regulator to complete the preparatory work.

'ETFs are more complicated than ordinary funds. We must ensure the security of trading and settlement systems, as it concerns two markets,' Yao said.

He also said there was no timetable for the launch of the long heralded international board, which would allow foreign companies to list on the mainland.

The introduction of the board is a 'must do', but it would not happen in the near future, because it is 'very complex', Yao said.

'There is no stipulation governing foreign companies listing on the mainland in our corporate law and securities law. Accounting rules are different,' he said.

'Also, we have to deal with cross-border supervision, taxation and other issues. The preparations will take time.'

Meanwhile, Liu Chunxu, director of the offerings and supervision division at the CSRC, said the regulator was working on criteria to scrutinise city commercial banks, which are queuing up to list.

More than 10 city commercial lenders have lodged applications, but no initial public offering is likely to take place in the near future, as the regulator has yet to come up with specific listing requirements, according to Liu.

Nearly 30 city commercial banks, hungry for fresh funds to fuel expansion, have announced listing plans that would raise 10 billion yuan via a dual Hong Kong-Shanghai initial public offering.

The Shanghai Composite Index edged up 0.47 per cent yesterday, with banks leading the gainers. Ningbo City Commercial Bank surged 7.65 per cent, while Bank of Nanjing rose 5.19 per cent.