Global investors rush to get a piece of China's stock and bond markets
Opening up of mainland's stock and bond markets pushes Western money managers to register dozens of ETFs tracking the securities
The race is on to give US exchange-traded fund (ETF) investors access to US$9 trillion of stocks and bonds in mainland China.
Money managers including BlackRock and CSOP Asset Management have now registered almost 40 ETFs tracking the mainland's domestic shares and debt with US regulators, six times the number of existing funds. The products allow anyone with a US brokerage account to gain exposure to Chinese securities that were previously off limits to all but a few qualified institutions.
Equities in the biggest emerging market are heading for the best annual gain since 2009, outpacing shares of mainland firms listed overseas amid speculation government plans to ease capital controls will narrow the valuation discount on domestic securities. As programmes including a planned bourse link between Hong Kong and Shanghai help open up the mainland's markets, fund providers are rushing to stake claims to the fees they hope will come from new investors.
"There is so much potential, you just can't ignore China," said Patricia Oey, a senior analyst at investment data provider Morningstar. Fund companies "want to have a foot into a very big market. China is opening up and they want to be there."
BlackRock, the world's largest money manager, is seeking to introduce its first US ETF that would invest directly in equities traded in Shanghai and Shenzhen. CSOP, which runs a US$6 billion ETF of the mainland's yuan-denominated A shares out of Hong Kong, filed to create a US version three days later.
While only a fraction of Chinese companies are listed or sell debt offshore, US investors have piled almost US$10 billion into ETFs that exclusively buy securities trading abroad, until recently one of the only ways for individuals to gain exposure to businesses on the mainland.
The Shanghai Composite Index has rallied 17 per cent this year, compared with a 0.8 per cent advance for a gauge of mainland shares listed in Hong Kong. The Hong Kong-Shanghai exchange link will debut on November 17. It will permit international money managers to purchase a net 13 billion yuan (HK$16.39 billion) a day of mainland shares, while also providing a route for mainland investors to buy Hong Kong equities.