The first ETFs to utilize the new cross-listing mechanism between the markets of Hong Kong and mainland China have begun trading.
The first funds utilizing the Hong Kong-China ETF Connect have begun trading.
The “ETF Connect” allows international investors to trade ETFs listed on the Shanghai and Shenzhen exchanges, and mainland Chinese investors to trade ETFs listed on the Hong Kong stock exchange.
The process involves the listing of a so-called ‘feeder’ ETF, run by a local asset manager, which invests at least 90% of its assets in a target ETF listed in the other market.
The ETF Connect is expected to offer significant advantages to investors in both markets.
Mainland Chinese investors will benefit from a broader product line-up, helping to diversify their portfolios, while investors trading in Hong Kong will receive more precise exposure to China’s onshore equity market compared to existing products that may suffer from high tracking errors due to limits on foreign ownership.
Four feeder ETFs have been introduced as part of the scheme’s debut.
Two feeder ETFs have listed on the Stock Exchange of Hong Kong which invest in Shenzhen-listed ETFs providing exposure to China A-share companies – one offers broad market access, while the other tracks firms linked to the theme of 5G technology.
Meanwhile, two feeder ETFs have listed on the Shenzhen Stock Exchange which invest in Hong Kong-listed ETFs providing exposure to Chinese stocks primarily listed offshore.
Hong Kong listings
Hang Seng Investment Management has listed the Hang Seng Harvest CSI 300 Index ETF (HKD: 3130 HK, USD: 83130 HK) which comes with a management fee of 0.80%. This feeder ETF invests in the Shenzhen-listed Harvest CSI 300 Index ETF (159919 CH).
The underlying reference is the CSI 300 Index which tracks the performance of the top 300 stocks listed in mainland China. Constituents are weighted by float-adjusted market cap.
CSOP Asset Management has listed the second feeder ETF in Hong Kong – the CSOP Yinhua CSI 5G Communications Theme ETF (HKD: 3193 HK) – which comes with a management fee of 0.99%. This feeder ETF attains its exposure by investing in the Shenzhen-listed Yinhua CSI 5G Communications Theme ETF.
The underlying reference is the CSI 5G Communication Index which selects its constituents from the parent CSI All Share Index universe of all Chinese A-share stocks. Stocks that rank in the bottom 20% of the parent universe by market cap or average daily trading volume are excluded. The methodology then selects all remaining companies that are related to 5G communication technology. This includes firms operating in telecommunication services, communication devices, computer and electronic equipment, and computer applications, among others. Constituents are weighted by float-adjusted market cap, and the index is reconstituted and rebalanced semi-annually.
Shenzhen listings
Harvest Funds has listed the Harvest Hang Seng China Enterprises Index ETF (159823 CH). This feeder ETF gains its exposure by investing in the HK-listed Hang Seng Investment Index Funds Series – Hang Seng CEI ETF (2828 HK).
The underlying reference is the Hang Seng China Enterprise Index is formed of 50 large-cap Chinese companies listed on the stock exchange of Hong Kong. The index is split between 40 H-shares and a total of 10 Red-chips and P-chips. Constituents are weighted by float-adjusted market cap.
Yinhua Fund Management has listed the second feeder ETF – the Yinhua ICBC CSOP S&P China New Sectors ETF (159822 CH). The ETF gains its exposure by investing in the HK-listed ICBC CSOP S&P New China Sectors ETF.
The underlying reference is the S&P New China Industry (A-Share Cap) Index which includes 300 of the largest Chinese companies in consumption- and service-oriented industries. All Chinese share classes are eligible for inclusion, though the total weight of A-shares companies is capped at 15% at each semi-annual rebalance. Constituents are weighted by market capitalization.