The China Securities Regulatory Commission is vetting an application from E Fund Management Co. to start the mainland’s first exchange-traded fund tracking the Hong Kong-listed shares of Chinese companies.
The application for the fund linked to the Hang Seng China Enterprises Index was accepted on Feb. 8, according to data posted on the securities regulator’s website yesterday. E Fund, based in the southern city of Guangzhou, is China’s third-largest asset management company with 126.2 billion yuan ($20 billion) of assets as of Sept. 30, according to Howbuy, a Shanghai-based fund tracker.
Introducing new products may help bolster stock trading turnover in China that has fallen to three-year lows as money supply tightens and the economy slows. The nation’s foreign-exchange reserves dropped in 2011 for the first time in more than a decade. The exchange-traded fund linked to Hong Kong stocks was part of a range of measures unveiled by Vice Premier Li Keqiang on Aug. 17 to boost cross-border investment between the mainland and the former British colony.
“It will be China’s first ETF fund investing in Hong Kong’s stock markets,” Lu Huitian, an analyst at Howbuy, said in a telephone interview today. “Mainland investors will have more investment options as ETFs are very convenient for them to buy and sell while it’s also definitely a boost to Hong Kong stocks.”
Plans to list ETFs tracking Hong Kong stocks were submitted to the State Council and the securities regulator before last month’s Lunar New Year holiday, the Hong Kong Economic Times said on Feb. 6, citing an unidentified person. The State Council may approve the proposals within a month, according to the report.
China scrapped a plan in January 2010 to allow Chinese nationals to buy Hong Kong stocks directly and instead expanded a program under which Chinese institutions can invest in overseas markets. The so-called “through-train” program for Chinese individuals was unveiled by regulators in August 2007 and helped push the benchmark Hang Seng Index to a record high that October.
Hang Seng Indexes Co. had been working with two fund management companies to create funds tracking Hong Kong stocks that would trade in China. The index provider is planning an exchange-traded fund linked to the Hang Seng Index and one following the Hang Seng China Enterprises Index, Vincent Kwan, director and general manager of Hang Seng Indexes, said on Aug. 19.
“The mainland listing of ETFs on Hong Kong stocks will increase the demand for the underlying stocks,” Scott Sapp, a spokesman for Hong Kong Exchanges & Clearing Ltd., wrote in a Feb. 7 e-mail. “We believe Hong Kong’s financial market, including HKEx and its participants, will benefit from this development.”
China is seeking to bolster its financial markets as growth in the world’s second-biggest economy cools and foreign investment moderates. The benchmark Shanghai Composite Index has slumped for two straight years. The average value of stock traded on Shanghai’s stock exchange in the past 100 days fell to $61.4 billion on Feb. 3, the lowest level since February 2009, according to data compiled by Bloomberg.
“It doesn’t hurt to have money coming in to help the market,” Terrace Chum, the Hong Kong-based managing director of greater China equities for Manulife Asset Management, which oversees about $199 billion, said on Feb. 6. “This is good timing if they do more at this moment.”