Stock Connect set to unlock Mainland demand for Hong Kong ETF market, finds BBH

Regulators are planning to include ETFs to the China-Hong Kong Stock Connect trading programme potentially by the end of the year.

By Joe Parsons

Hong Kong’s exchange traded fund (ETF) market is expected to boom once the asset class is included in the China-Hong Kong Stock Connect trading scheme, according to new research.

A survey from Brown Brothers Harriman (BBH) found that some 90% of Mainland Chinese investors will likely invest in Hong Kong ETFs when included in Stock Connect.

ETFs are not currently part of the Stock Connect trading programme, however regulators are planning to include the asset class potentially by the end of the year.

“The inclusion of ETFs in Stock Connect will open another cross-border channel for Mainland investors to deploy their capital and further diversify their investment outside the Mainland. This development presents a significant opportunity for regional and global asset managers,” said Chris Pigott, head of Hong Kong ETF servicing, BBH.

The research, which surveyed 100 financial intermediaries and institutional investors from Mainland China, Hong Kong and Taiwan, all of whom were invested in ETFs, also showed strong interest in ETFs across Greater China.

Almost half of Mainland investors plan to increase their ETF holdings, and 65% of investors surveyed in Hong Kong and Taiwan are also looking to increase their ETF exposure.

However, for the investors that are not planning to increase their ETF exposure over the new year, 41% highlighted education and 39% noted trading costs as the main hindrance to investing.

“Liquidity continues to be an area of focus for investors as some products in Greater China don’t have heavy volumes and a number don’t trade significantly on a daily basis, but the underlying assets they are invested in are liquid. Education could be a key to unlocking future growth,” Pigott added.