Hong Kong, Shenzhen start cross-listing of ETFs, setting a milestone in the financial integration of the Greater Bay Area

Two feeder funds began trading on the Hong Kong and Shenzhen exchanges on Friday , adding to the portfolio of cross-border financial instruments now available to residents of the Greater Bay Area and setting a milestone in the region’s financial integration.

The CSOP Yinhua CSI 5G Communications Theme ETF, a feeder fund that mirrors an exchange-traded fund (ETF) in Shenzhen, rose to as much as HK$8.16 in Hong Kong trading, compared with its October 22 net asset value of 7 yuan (US$1.04). The Yinhua ICBC CSOP S&P New China Sectors ETF, a Shenzhen-traded financial instrument that mirrors a fund in Hong Kong, was little changed from its October 21 net asset value of 1 yuan.

The debut of the two cross-listed instruments expands the financial products in which investors of Hong Kong and mainland China – separated by a physical border and two different currencies – can now buy and sell. The scheme lets Hong Kong’s investors trade a Shenzhen-listed ETF through a feeder fund that mirror its performance. Conversely, investors in China can buy or sell a Hong Kong-listed ETF through a feeder fund set up by a Chinese manager in Shenzhen.

“Such pilot cross-listing ETFs underscore the priority and support given by the Chinese and Hong Kong governments on forging greater financial integration in the Greater Bay Area,” said Ding Chen, chief executive of CSOP Asset Management, one of the asset managers chosen for the landmark project. “We hope that cross-listing ETFs will become a market norm with more new launches by the industry.”

China maintains tight capital controls, which limits the avenue for overseas investors to access financial instruments on the nation’s exchanges, and similarly bars Chinese citizens and funds from trading offshore.

As of the end of July, there were 139 ETFs and other index-tracking products with a combined market value of HK$328 billion listed in Hong Kong. In the first seven months of the year, 13 new products listed in the city and more are in the pipeline.