The creation of a mainland-style Tracker Fund to dispose of state-owned assets remains 'distinctly possible' in the next few years, according to Graham Colbourne, Asia-Pacific chairman of global index provider FTSE.
This is despite Beijing's recent scrapping of plans to sell down state shares due to fears of market volatility.
Divesting state-owned assets through an exchange-trade fund (ETF) - the system used by the Hong Kong government to dispose of its holdings acquired during the 1998 stock market intervention - would minimise the impact on individual companies and bring broader institutional support to the market, he said.
'The government is quite right in that it does not want foreigners speculating against individual companies,' he said.
'But if you create an exchange-traded fund based on a broad-based index, funded predominately with government holdings, that would open up the market to international investors [while] allowing the government to regulate the flow of funds through the foreign-exchange market,' he said.
'At the moment, the Chinese market operates like a market of stocks and not a stock market. Trading activity [takes place] throughout the market rather than in the biggest companies. The market needs some proper institutional money to give it structure.'
