SFC studying applications for three more yuan ETFs

PUBLISHED : Monday, 16 July, 2012, 12:00am
UPDATED : Monday, 16 July, 2012, 12:00am


The Securities and Futures Commission is in the process of approving three more yuan-denominated exchange traded funds (ETFs) that will allow Hong Kong investors to bet on mainland stocks.

Just two weeks ago, the regulator approved the first yuan ETF, a five billion yuan (HK$6.07 billion) fund issued by China Asset Management (CAM).

Alexa Lam, the SFC's deputy chief executive, said it is vetting three applications from different firms to launch yuan ETFs, all also five billion yuan in size.

An ETF allows buyers to invest in a basket of stocks. The CAM ETF, for example, tracks the CSI 300 Index, the components of which are the 300 A shares with the largest market capitalisation and the best liquidity on the Shanghai and Shenzhen stock exchanges.

Lam said, without giving further details, that the three ETFs pending approval would track different indices on the mainland, allowing Hong Kong investors more choice.

'Investors, however, should also be aware of the risk factors while they are investing in yuan-denominated ETFs, such as the fact that the yuan is not yet fully convertible,' she said. The A-share ETF scheme is part of China's broader efforts to internationalise its currency and get more overseas investors to invest in the mainland market, which has been among the worst performers worldwide in the past couple of years.

The Shanghai Composite Index has advanced just 1.1 per cent so far this year, with more than a third of retail investors losing over 30 per cent of their investment in equities in the first half.

Chim Pui-chung, legislator for the financial services sector, however, was sceptical about investor appetite in Hong Kong for mainland stocks at the moment.

'The mainland market is not performing well. This is not a good time to introduce these products,' Chim said.

But Lam said the ETFs would be suitable for investors who take a longer view of the mainland market.

The mainland has yet to open up its capital market fully and allows overseas investors to invest there only through its two qualified foreign institutional investor (QFII) schemes.

The US-dollar-denominated QFII scheme, introduced in 2002, allows selected international firms to invest on the mainland, with the total quota set at US$80 billion for their funds.

The RQFII (renminbi-denominated qualified foreign institutional investor) scheme, introduced in December, with an initial quota of 20 billion yuan, allows 21 Hong Kong firms that are subsidiaries of mainland companies to issue yuandenominated fund products through which Hong Kong investors can invest in the mainland's yuan-denominated shares and bonds.

These products, however, did not prove very popular.

In April, the RQFII quota was increased 70 billion yuan to accommodate A-share ETFs.

The China Securities Regulatory Commission announced plans last month to expand the two QFII schemes further by easing the minimum requirements to qualify for them.