Hong Kong-listed ETF trading via China Connect jumps 90%

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Two months after the launch of the new exchange-traded fund connection program between China and Hong Kong, southbound trading by mainland investors and trading via the northbound route for Hong Kong and overseas investors has started to resume.

Aggregate trading volume of the four Hong Kong-listed ETFs traded by mainland investors via ETF Connect reached HK$8.16 billion ($1.04 billion) in August, up nearly 90% from to HK$4.31 billion reached the previous month.

This compares to the total turnover of 83 ETFs listed in mainland China under the new ETF Connect for investors via the Hong Kong stock exchange, which reached Rmb 606.5 million ($87.2 million), according to Hong Kong Exchanges and Clearing data, up more than 50% from Rmb 395.9 million in July.

The latest figures mark a widening gap between the southern and northern routes under the new ETF trading channel.

This article was previously published by Ignites Asia, a title owned by the FT Group.

Mainland investors trading Hong Kong-listed ETFs through the Shanghai Stock Exchange generated the strongest revenue growth during the month, tripling to HK$4.69 billion. The Shenzhen link edged up 9% to HK$3.47 billion, according to HKEX data.

The China-Hong Kong ETF program, which has lasted more than six years, began operating on July 4, marking the 25th anniversary of Hong Kong’s return to Chinese rule. Launched at a time when Hong Kong’s economy was struggling to rebound amid zero Covid restrictions and an outflow of talent from the territory, the scheme has nonetheless proven popular with mainland investors wanting to buy the drop in the market.

Among Hong Kong’s four eligible commodities, the CSOP Hang Seng Tech Index ETF received the highest net inflows in August at HK$33.4 million, according to data from Wind. The other three strategies are the Tracker Fund, the Hang Seng China Enterprise Index ETF, and the iShares Hang Seng Tech Index ETF.

Senior HKEX officials said at a recent industry meeting that they expect more Hong Kong-listed exchange-traded products, including leveraged and inverse products, ETFs actively managed and smart beta ETFs, be allowed to join the program in the future.

Mainland analysts believe the inclusion of ETFs in Stock Connect is the first step to introducing more Mainland investors to the Hong Kong ETF market.

“Chinese ETFs have a wide range of investment themes and manage huge asset pools,” said Xu Meng, fund manager at China Asset Management.

“Niche themed ETFs, including those that track food and beverage companies, carbon neutral stocks and new energy automakers, as well as science and technology themed ETFs, will hopefully be -the, included in the program,” he added.

Xu also pointed to the current divergences between mainland and Hong Kong investors.

“Some fund companies on the mainland may not be well known to foreign investors, which means they need to improve their investment and risk management to attract more investors,” he noted.

*Ignites Asia is an information service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at ignitesasia.com.

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