Kudos to the upcoming changes in ETF Connect, as a wider range of choices and funds beckon investors

The measures, which lower the size and portfolio component thresholds for the ETF Connect program, are likely to double the pool of ETFs that track equity benchmarks in both financial markets, where trading volume has increased in recent months.

“The improvements are a step in the right direction to ensure its success in the future,” Tom Digby, head of ETF business development and capital markets for Asia Pacific at Invesco, said at a conference organized by the Hong Kong Investment Funds Association (HKIFA). ) on Thursday.

An ETF is an investment vehicle that works like a combination of mutual funds and stocks, typically tracking major indices by mirroring their components. Individual investors who buy and sell the ETFs are essentially purchasing stocks represented in the target index.

The China Securities Regulatory Commission (CSRC) last week unveiled five measures to help halt a market slump and revive confidence in the country’s capital markets. The decision to adjust the eligibility criteria for ETF Connect came after the Chinese market intervention when sovereign wealth funds pumped billions into the ETF vehicles to boost share prices.

Support from China’s market watchdog to move IPOs from the mainland to Hong Kong

The CSRC will reduce the minimum assets under management from HK$1.7 billion to HK$550 million (US$70 million). ETF managers are allowed to hold 60 percent of their assets in shares listed on the Hong Kong or mainland stock exchanges, up from 90 percent currently.

According to Hong Kong Exchanges and Clearing, the city’s exchange operator, the changes will be implemented around the middle of the year.

About 78 mainland-listed ETFs with combined assets of 85.2 billion yuan (US$11.8 billion/HK$92 billion) and eight Hong Kong-listed ETFs with HK$25.5 billion in assets could join the ETF after the changes Connect program, according to a published estimate. by China International Capital Corp on Monday.

Hong Kong investors will get access to $89.6 billion in China-based ETFs

Investors can trade 83 mainland-listed ETFs and four Hong Kong-listed ETFs through the ETF Connect program, which was launched in July 2022.

“We have seen more capital flow into our Hong Kong-listed ETFs,” said Andy Ng, head of iShares Equity Product Strategy and Global Product Solutions at BlackRock, the world’s largest money manager. “We are very encouraged to see the latest changes” that offer investors more choices, he added during the panel discussion.

Average daily turnover of ETFs rose 8 percent to HK$13.3 billion in Hong Kong in the first quarter from a year earlier, the exchange said this week. Seven new ETF products were launched this quarter, the report said.

In contrast, equity turnover fell 22 percent to HK$99.4 billion per day over the same period, while funds raised from initial share issues fell 29 percent to US$604.4 million.

Rahul Bhalla, head of Asia ETF distribution at Franklin Templeton, said investor education is key to bringing ETFs to the attention of a wider group of participants.

The fund management industry should push for simpler rules and regulations within the ETF Connect program, says Alex Chiu, senior strategist of ETF Business at Value Partners. It would be helpful if the scheme could include ETFs that invest in overseas markets or other asset classes such as bonds, he added.