ETF access will “stimulate” Chinese stocks

ETFs will become part of the Hong Kong Stock Connect scheme for the first time in history, providing international investors access to Chinese mainland ETFs.

The Hong Kong Stock Connect scheme provides a platform for non-Chinese investors to trade Chinese A-shares listed on the Shenzhen or Shanghai stock exchanges, while also providing Chinese mainland investors the ability to trade Hong Kong-listed securities.

However, since the programme was launched in 2014, ETFs have been excluded.

The recently-announced move to include ETFs follows an agreement reached between the Hong Kong’s Securities and Futures Commission and the China Securities Regulatory Commission.

“It (ETF inclusion) will provide investors in both markets with more choice and support the healthy development of ETFs by expanding the investor base and improving liquidity,” said Hong Kong Securities and Futures Commission Chief Executive Officer, Ashley Alder.

It is expected ETFs will be tradable through Stock Connect within two months.

Move to boost Chinese A-shares, tech sector

Making it easier for global retail investors to access Chinese mainland ETFs, while simultaneously making it easier for Chinese mainland capital to flow into Hong Kong ETFs, will help stimulate both the Chinese stock market and the Hong Kong market, according to experts.

“Now it’s hard for offshore investors to invest in China’s specific industries. The new ETF scheme will allow them to do so,” Guosen Securities analyst, Gary Ching, told the South China Morning Post.

“Because the ETF volume will be calculated into the overall stock trading volume, it will stimulate the stock markets and help ease capital outflows amid a weaker yuan.”

Chairman of Hong Kong Institute of Securities Dealers, Tom Chan Pak Lam, said he expects technology stocks to benefit most.

“The inclusion of ETFs into the stock connect schemes will benefit tech stocks ETF the most. Many tech stocks are not yet qualified to be traded in stock connect, but investors can invest in these companies via the ETF,” he said.

Globally, the popularity of ETFs has surged over the past decade. In recent years a record amount of capital has flowed into U.S.-listed ETFs.

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