Stock Connect

Launch of ETF Connect expected in second half of 2018, Hong Kong bankers’ seminar hears

Connect to focus on trade in plain ETF products initially as mainland investors are not familiar with more complicated offerings

PUBLISHED : Wednesday, 03 January, 2018, 6:03pm
UPDATED : Wednesday, 03 January, 2018, 10:55pm

ETF Connect, which will allow international and mainland investors to trade in exchange-traded fund products listed on bourses in Hong Kong, Shanghai and Shenzhen, is expected to launched in the second half of this year, according to bankers involved in the city’s connect programmes.

“The ETF Connect should be able to launch in the second half of this year. Initially, it is likely to be the simple, plain vanilla style of exchange-traded fund products, to be traded under this scheme as mainland investors are not familiar with complicated products,” Patrick Wong, head of China sales and business development at HSBC Securities Services, said on Wednesday.

Regulators in China indicated the ETF Connect will be launched following rule changes giving the China Securities Regulatory Commission access to the identities of investors taking part in the stock connect for better scrutiny of the market.

Wong said since the identification regulations will be ready in the first half, this will pave the way for the ETF Connect to launch in the second half of the year.

“Mainlanders will be interested in trading exchange-traded funds listed in Hong Kong, including index funds tracking stock or bond markets in the US, Europe and Asia,” Wong said at a seminar hosted by the Hong Kong Investment Funds Association.

Mainlanders will be interested in trading ETFs listed in Hong Kong, including index funds tracking stock or bond markets in the US, Europe and Asia
Patrick Wong, head of China sales and business development, HSBC Securities Services

Exchange-traded funds work like a combination of listed stocks and funds that allow investors who buy a unit of the fund to buy into a basket of stocks or bonds that track key indices.

Cindy Chen, the country head of Hong Kong securities services at Citi, said such funds will be popular among mainland and international investors.

“Mainland investors will be interested to trade in exchange-traded funds in Hong Kong, which allow them to invest in overseas markets to diversify their portfolios. International investors can also find it easy to invest in funds listed in Shanghai and Shenzhen,” Chen said at the seminar.

She added that international investors supported the further development of connect programmes, which started off in November 2014 with a tie-up between Hong Kong and Shanghai. A new connect was added with Shenzhen in December 2016, and a northbound bond connect was introduced in July 2017.

Chen said international investors and fund houses would like to see more improvements in the programmes, such as a cut down in the number of holidays and an improvement in the settlement arrangements.

They would also like to see the connect programme expanded to include initial public offerings, she added.

Both Chen and Wong said the stock connects’ turnover would increase, particularly after China recently announced plans to allow the full circulation of H shares, which they said would lead to more mainland investors buying H shares in Hong Kong. Southbound investment, or mainland China investors trading in Hong Kong, through the two stock connects represents 6 per cent of the Hong Kong market’s turnover, stock exchange data shows.