Hong Kong exchange working on ETF Connect launch

HKEx is planning to introduce ETFs into the Stock Connect link as part of its expansion plans.
By Jonathan Watkins
Hong Kong Exchanges and Clearing (HKEx) is working to include ETFs in the Stock Connect initiative, as part of planned expansions to the cross-border investment channel.

The exchange’s chief executive confirmed the plans while also highlighting the possibilities of a bond and commodities connect developing between mainland China and Hong Kong.

“Given Mainland investors’ growing demand for asset diversification, including ETFs in the scheme will provide additional investment opportunities for Southbound investors,” said Charles Li, CEO of HKEx.

“Therefore, it is strategically important for Hong Kong as a wealth management centre. “

The launch of ETF Connect will still depend on regulatory approval, while Li also highlighted there will be “system development and operational issues” to overcome.

Speaking to Global Custodian in August 2016, HSBC’s head of China sales and business development, EMEA, securities services, Florence Lee, said an ETF inclusion would make Stock Connect “more attractive for both the foreign and domestic Chinese investors”.

HKEx is also considering a Bond Connect model built around off-exchange trading, with further updates to follow during 2017.

A potential commodities trading platform will depend on the London Metal Exchange’s success in setting up in Shenzhen’s Qianhai Economic Zone. Li said that once the Qianhai platform is up and running, the exchange will look at a possible connection.

The developments would be the latest in a series of launches aimed at liberalising the Chinese markets and improving access.

In December, the Shenzhen-Hong Kong Stock Connect trading link was launched, following a year which had seen the expansion of the RQFII quota, giving access to the third largest bond market in the world.