The first China Tracker fund to trade in Hong Kong saw a turnover of HK$24.27 million on its debut yesterday, compared to $29.95 million for the widely owned blue-chip linked Hong Kong Tracker Fund. The new fund tracks about 95 per cent of the red chips and H shares in Morgan Stanley Capital International's (MSCI) China Free Index. It closed at $16.50, showing a loss of 2.65 per cent from its issue price of $16.95 as stocks such as China Mobile - which makes up 50 per cent of the index - declined. Like the Tracker Fund equivalent, large investors can buy units of the stocks underlying the China Tracker. The fund's manager, Joseph Ho of Barclays Global Investors, believes most investors are interested in using the tracker to capture growth in China stocks. Some big investors, however, may take advantage of fund ownership to buy its underlying stocks at a cheaper cost. The minimum transaction cost for the China Tracker is about $3,500 but should investors want to buy the four largest stocks in the MSCI China index they would need to pay at least $50,000. 'We have seen a lot of small-lot buying, which showed that many small investors are investing in the fund,' Mr Ho said. 'We would like to see retail and institutional investors trade the fund.' China Tracker is the fourth index fund listed in Hong Kong. The Tracker Fund has been actively traded since it was introduced in 1999. However, Barclays' two index funds based on Taiwanese and South Korean stocks - introduced in May - saw an average daily turnover of about $1 million last month. 'This shows investors want to trade the index funds which are based on the stocks they are familiar with,' Mr Ho said. China Tracker follows about 30 stocks but the four biggest - China Mobile (Hong Kong), Citic Pacific, PetroChina and Legend Holdings - represented about 74 per cent of the weighting of the MSCI index. China Tracker had an initial size of $258 million. The fund has two market makers - Morgan Stanley and Salomon Smith Barney - to ensure liquidity for the product. MSCI is phasing in the first of a two-stage migration to a free-float based system tomorrow, which should see new entrants such as Sinopec Corp and a lower-weighted China Mobile. Mr Ho said Barclays had already used the new method to calculate the China Tracker so it would not need to change the composition of the fund.