Tracker Fund still popular 20 years after Hong Kong government created ETF to dispose of shares bought during 1998 crisis

The Hong Kong government created the index-tracking fund to sell its equity portfolio accumulated during the market intervention in 1998

Hong Kong is the now Asia’s fifth largest ETF market with 119 listed funds managing US$37 billion worth of assets

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People chat outside the Hong Kong Exchange Square building in Central. On Tuesday, Hong Kong Exchanges and Clearing will celebrate the 20th anniversary of the Tracker Fund. Photo: AP Photo

Published: 7:15am, 11 Nov 2019Updated: 7:15am, 11 Nov 2019

The popularity of Tracker Fund, Hong Kong’s first exchange trade fund has made the stock exchange Asia’s fifth-largest ETF market, which can be further boosted by a “connect” to allow cross border trading of the index funds, according to market observers.

Hong Kong Exchanges and Clearing on Tuesday will mark the 20th anniversary of the Tracker Fund – the first ETF to be listed on the stock exchange. Now 119 ETFs manage assets worth US$37 billion, according to Bloomberg data as of Friday, with Japan way ahead at US$391 billion, followed by mainland China at US$78 billion, Taiwan at US$51 billion and South Korea at US$40 billion.

Christine Lin, partner at financial services firm EY, said since the ETF market has developed well over the past two decades, Hong Kong and China should launch a “connect for cross border trading of ETFs to further boost ETFs in Hong Kong”.

An “ETF connect” was supposed to be the fourth scheme linking Hong Kong and the mainland after the stock connect with Shanghai in 2014, followed by Shenzhen in 2016 and the bond connect allowing northbound trading in 2017. However, the plan was shelved because of difficulties in trading and settlement of ETFs between Hong Kong and the two mainland markets.

Ray Chan Chun-man, head of SPDR ETFs Hong Kong at State Street Global Advisors, says investors are happy with returns provided by the fund. Photo: Xiaomei Chen

The Securities and Futures Commission chairman Tim Lui last year said the focus would now be on the launch of cross listing of these index funds, but there is no definite timetable to execute the plan. In June, Beijing started a cross listing programme with Japan, allowing four funds each from China and Japan to cross list on their respective bourses.

“Going forward, if we can initially have cross listing of ETFs between Hong Kong and the mainland and then further develop it into a full scale ETF connect, it will be a big boost to the index fund market in Hong Kong,” Lin said.