China is likely to approve in late June plans to launch two new investment products that will give investors in both mainland China and Hong Kong access to stocks in each others’ markets for the first time in history, said a person involved in the matter.
Such a decision would represent another step by Beijing to further open its tightly controlled capital account, boost the yuan’s use internationally and inject more vitality and diversity into its relatively isolated domestic stock market.
The move would also be a partial resurrection of a programme, known among investors as the “through train,” under which mainland investors were to be allowed to directly trade Hong Kong equities via onshore banks. Chinese authorities unveiled the planned programme in 2007, but it was subsequently shelved.
China’s securities regulator will likely approve a long-discussed plan to allow the issuance of exchange-traded funds linked to Hong Kong-listed shares around June 29, said the person.
The ETFs will trade on both the Shanghai and Shenzhen stock exchanges, the person said, adding that subscriptions for the ETFs may open as early as mid-July.
The regulator is also likely to approve a similar plan around the same time that would lead to the launch of ETFs linked to China’s A shares but listed on the Hong Kong stock exchange, said the person.
Hong Kong regulators will also have to approve the products.
Officials at the China Securities Regulatory Commission, the country’s securities watchdog, couldn’t immediately be reached for comment.
Word of the possible approval comes after two fund managers submitted applications to the regulatory commission earlier this year to launch ETFs tracking Hong Kong shares. China Asset Management Co. is looking to issue an ETF linked to the Hang Seng Index that would trade on the Shenzhen Stock Exchange, while E Fund Management Co. is planning an ETF linked to the Hang Seng Index that would trade on the Shanghai Stock Exchange.
Chinese investors would be able to buy the products using either yuan or US dollars under the Qualified Domestic Institutional Investors programme, the main channel through which local investors trade overseas securities.
Meanwhile, the ETFs linked to China’s A shares to be offered in Hong Kong will fall under the so-called Renminbi Qualified Foreign Institutional Investors programme, the only means through which yuan acquired offshore, such as in Hong Kong, can enter capital markets on the mainland.
However, it isn’t clear yet whether the Hong Kong-listed ETFs will be denominated in yuan.
The person familiar with the situation said the securities regulator may approve four fund managers’ plans to launch ETFs tracking A shares. The four firms are China Asset Management Co., Harvest Fund Management Co., E Fund Management Co., and China Southern Fund Co., the person said.
The expected launch of the new products is part of Beijing’s campaign to reform and liberalise its creaky financial sector and inefficient capital markets, as the authorities are under increased pressure to bolster domestic consumption and economic growth amid a deteriorating global environment.
In recent weeks, Beijing has unveiled a slew of reforms by opening up sectors traditionally dominated by the state to private capital and allowing foreign investors a stronger presence in local capital markets.
Category: Hong Kong