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Tracker fund for mainland investors eyed

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Eighteen months after the 'stocks through train' was derailed, Beijing is to 'actively explore' another way for mainland investors to put money into Hong Kong shares.

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The proposal, included in the latest supplement to the Cepa free-trade pact, involves an 'index-tracking exchange-traded fund' backed by portfolios of Hong Kong-listed stocks, the agreement says.

The idea of launching such funds, called ETFs, was raised two years ago by the Shanghai Stock Exchange and by Financial Secretary John Tsang Chun-wah, but this is the first reference to it in a formal agreement by the two sides.

The agreement, the sixth supplement to the Closer Economic Partnership Arrangement, contains several measures to boost Hong Kong's financial sector. Banks will be able to expand more easily in Guangdong, and securities companies will be able to offer investment advice there.

ETFs have an investment structure similar to mutual funds. Ben Kwong Man-bun, of securities house KGI Asia, said it might be easier for Beijing to introduce ETFs, as opposed to direct buying of Hong Kong stocks via the 'through train', because it could better control the outflow of capital to Hong Kong.

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Hong Kong's stock market regulator, the Securities and Futures Commission (SFC), will explore with its mainland counterpart the introduction of ETFs once the measures announced under the Cepa supplement take effect in October. A government spokesman said the discussion would cover legal and regulatory changes needed to bring in ETFs.

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