Trading of Hong Kong-listed ETFs via China Connect jumps by 90%

Two months into the launch of the new exchange traded fund connect scheme between China and Hong Kong, southbound trading by mainland investors and trading via the northbound route for Hong Kong and foreign investors have begun to pick up.

Overall trading volumes in the four Hong Kong-listed ETFs traded by mainland investors via the ETF Connect hit HK$8.16bn ($1.04bn) in August, increasing by almost 90 per cent from the HK$4.31bn achieved in the previous month.

That compares to the aggregate turnover for 83 mainland China-listed ETFs under the new ETF Connect from investors via the Hong Kong exchange, which reached Rmb606.5mn ($87.2mn), according to data from the Hong Kong Exchanges and Clearing, up by more than 50 per cent from the Rmb395.9mn in July.

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

Mainland investors trading Hong Kong-listed ETFs through the Shanghai bourse drove the largest growth in turnover in the month, tripling to HK$4.69bn. The Shenzhen link edged up by 9 per cent to HK$3.47bn, HKEX data show.

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

Of the four eligible Hong Kong products, the CSOP Hang Seng Tech Index ETF received the highest net inflows in August, at HK$33.4mn, Wind data show. The three other strategies are the Tracker Fund, Hang Seng China Enterprise Index ETF and iShares Hang Seng Tech Index ETF.

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

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

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

“Niche thematic ETFs, including those tracking food and beverages firms, carbon-neutrality stocks and new-energy carmakers, as well as science and tech-themed ETFs, will hopefully be included in the scheme,” he added.

Xu also highlighted the current discrepancies between mainland and Hong Kong investors.

“Some mainland fund houses might not be that well known to offshore investors, that means they have to improve their investment and risk management to attract more investors,” he noted.

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