ETF cross-listings start between Hong Kong, Shanghai bourses

Cross-listing of exchange traded funds between the Hong Kong and Shanghai bourses commenced on Tuesday with the listing of two instruments, signaling increasingly closer ties between the two financial markets.

According to Liu Ti, deputy general manager of the Shanghai Stock Exchange, continued efforts will be made to perfect the connect mechanism and advance two-way opening-up of the capital market.

Recognizing the listing as an important step forward in the development of cross-border ETFs, HKEX Chief Executive Officer Nicolas Aguzin said sustained efforts will be made to build the fast-growing ETF market in Asia by working with the Chinese mainland exchanges, regulators and market participants.

Huatai-PineBridge CSOP Hang Seng Technology ETF became the first ETF to be listed on the Shanghai Stock Exchange under the cross-listing scheme. The ETF follows 30 constituents of the Hang Seng TECH Index, the majority of which are leading mainland new economy companies. The product has attracted over 40,000 investors, with the assets under management reaching over 1.17 billion yuan ($184 million).

Under the cross-listing mechanism, Chinese mainland investors can access more internet companies, which represent China's high-level of economic development, said Liu Jun, investment director of the Shanghai-headquartered Huatai-PineBridge Investments.

"Currently, investors can only access the stocks via the Shanghai-Hong Kong stock connect program launched in 2014. The ETF cross-listing scheme has expanded the investment scope to asset management products, which is in line with the market trend. The newly started scheme can also address cross-border investment needs more directly, he said.

Cross-border ETFs traded at the Shanghai bourse have reached overseas markets including the United States, Germany, France and Japan ever since the first cross-border ETF mechanism was introduced in 2013, according to data from the SSE. The market cap of the ETFs trading at the Shanghai bourse has exceeded 1 trillion yuan, which is the second largest in Asia. At present, there are 24 cross-border ETFs trading at the Shanghai exchange, with the total AUM exceeding 51.6 billion yuan.

On the other hand, the new ETF listed in Hong Kong on Tuesday－CSOP Huatai-PineBridge China Securities Index Photovoltaic Industry ETF－has been approved by the Securities and Futures Commission in Hong Kong. Through the renminbi qualified foreign institutional investor (RQFII) status, the ETF follows 50 A-share photovoltaic companies throughout the industrial chain. Established in December 2020, the initial financing of the ETF was 1.7 billion yuan and its AUM surged to over 10 billion yuan in less than 10 trading days.

As of May 28, there are over 140 Hong Kong-listed ETFs with the trading value topping $7.6 billion per day, which is up from an average daily turnover of $6.4 billion in 2020. The current AUM of these ETFs are valued at over $400 billion.