SHANGHAI, May 24 (Reuters) - Hong Kong Exchanges and Clearing (HKEX) is “working very hard” on ETF Connect, a cross-border scheme that would give Chinese investors exposure to overseas assets through exchange-traded funds (ETF) listed in Hong Kong, an exchange official said on Thursday.
The exchange is working to resolve some technical issues involving settlement between Hong Kong and mainland bourses, Victoria Coe, a senior vice president at HKEX responsible for China market development, said on the sidelines of a conference in Shanghai.
She declined to forecast when the scheme will be launched.
The ETF Connect plans underline HKEX’s ambition to broaden its trading links with mainland China after the launch of Stock Connect and Bond Connect. ETF Connect could help Chinese investors such as wealth managers and pension funds to better allocate their assets globally, Coe said.
China has been accelerating the opening up of its capital markets and promoting cross-border capital flows. ETF Connect, once launched, would boost Greater China’ $92 billion market for ETFs and exchange-traded products, the fourth largest in the world.
ETF Connect would also create new business opportunities for ETF managers and help to increase trading volume at the HKEX, Shanghai and Shenzhen stock exchanges.
Chris Pigott, head of Hong Kong ETF Services at Brown Brothers Harriman (BBH), said that strict capital controls in China mean there is “pent-up demand from investors in China for global diversification”. He expects ETF Connect to be launched before the end of this year.
Compared with Stock Connect, the ETF scheme offers investors exposure to a broader range of assets, Pigott said.
According to a recent BBH survey with professional ETF investors, nearly 90 percent of mainland China respondents said they would be likely to invest in Hong Kong ETFs if ETF Connect is launched.
“Many Hong Kong fund managers are hugely interested, hoping the ETF products they issue can be qualified for investment under ETF Connect,” HKEX’s Coe said, without identifying what type of products would qualify.
She said that HKEX hopes to build on the success of the Stock Connect.
Over the past 10 months, average daily trading volume in the China-bound leg of the Stock Connect surged by 262 percent, while the Hong Kong-bound leg jumped by 248 percent, she said. (Reporting by Samuel Shen and John Ruwtich Editing by David Goodman)