China Approves First Mainland ETFs Tracking Hong Kong Stocks - Businessweek

The China Securities Regulatory Commission approved the first two mainland-listed exchange- traded funds to track Hong Kong stock indexes, on the Shanghai and Shenzhen Chinese bourses, the city’s regulator said today.

Hong Kong’s Securities and Futures Commission also authorized the listing of a yuan-denominated A-share ETF on the Hong Kong stock exchange, it said. The ETF under the Renminbi Qualified Foreign Institutional Investor program,which allows Hong Kong units of Chinese financial companies to raise yuan in the city and invest in China’s capital markets, will track the performance of an A-share index, it said.

“There will definitely be demand for the Hong Kong ETF,” said Chen Liqiu, a strategist at Jianghai Securities Co. in Shanghai. “It will be composed of quality blue chips. While there’s demand, it may not be overwhelmingly successful. This ETF will divert some liquidity away from A shares but I don’t expect the spillover to cause a great impact.”

The announcement comes as Chinese President Hu Jintao begins a three-day visit to the city today to mark the 15th anniversary of the Hong Kong’s return to Chinese rule. Hong Kong Exchanges & Clearing Ltd. yesterday agreed to set up a joint venture to develop index-linked and equity derivative products with its mainland Chinese counterparts.

Hang Seng Indexes Co. said today it licensed two ETFs issued in mainland China. One will be linked to the Hang Seng Index (HSI) and be issued by China Asset Management Co. and listed on the Shenzhen Stock Exchange. The other, issued by E Fund Management Co., will be linked to the Hang Seng China Enterprises Index and listed on the Shanghai Stock Exchange, the index compiler said.

Vice Premier Li Keqiang first announced in August that China will start an exchange-traded funds based on Hong Kong equities, after the government scrapped in January 2010 a plan to allow Chinese nationals to buy equities directly. The so- called “through-train” program for direct purchases, unveiled by regulators in August 2007, had helped push the Hang Seng Index to a record high in October that year.

“Hong Kong stock ETFs provide an alternative channel for mainland investors to participate in the Hong Kong securities market and further strengthen the co-operation between the mainland and Hong Kong capital markets,” SFC Chairman Eddy Fong said in the statement.

To contact the reporters on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net; Weiyi Lim in Singapore at wlim26@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.