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China and Singapore are “making good progress” in developing an exchange-traded fund connectivity program, according to a statement from China’s security regulator.
“Positive progress has been made in a joint program between the Shenzhen Stock Exchange and the Singapore Stock Exchange, and both sides will be actively pushing for the early realization of the link between the ETF markets,” he said. transcript of a speech made by Fang Xinghai, Vice Chairman of the China Securities Regulatory Commission.
Fang did not elaborate further on how the two ETF markets would be linked nor the timeline of such a launch.
At the opening of the annual China-Singapore Connectivity Initiative’s financial summit on Tuesday, Fang said closer cooperation between regulators in the two markets “would facilitate the operations of financial institutions from both sides in each other’s capital markets”.
China’s equities ETFs have surpass Rmb1tn ($ 157bn) in total assets in November, more than a decade and a half after the first onshore strategy hit the market, Wind data shows.
The rapid growth of the stock ETF market on land has benefited from pressure from regulators and stock exchanges in Shanghai and Shenzhen, the transparent, low-risk and affordable nature of the ETF product, and the spread of thematic strategies.
At the same time, local investor interest in China-linked ETF products has also grown, including in Singapore.
For example, in September last year, CSOP Asset Management listed its first ETF in Singapore: the ICBC CSOP FTSE Chinese Government Bond Index ETF. The fund quickly has become the largest ETF domiciled in the city-state just over a month after its launch, underscoring strong interest from global investors seeking access to China’s debt markets to the country.
The Hong Kong-based asset manager at the time said the rapid rise in the ETF’s asset pool was driven in part by China’s stable economic recovery, appreciation of the renminbi and the inclusion of Chinese government bonds in an FTSE bond index.
In recent years, China has rapidly developed several ETF cross-listing schemes with overseas exchange partners, with varying success rates, as regulators try to exploit the demand for passive exposure to Chinese markets regionally and globally.
In 2019, the Shanghai exchange established An ETF liaison scheme with Japan, which enables four Chinese and four Japanese asset managers to list ETFs on both exchanges and invest in each other’s markets.
Last year, regulators in Shenzhen and Hong Kong drew up a cross-listing master-feeder framework, with three pairs of ETFs approved for sale in the respective markets.
However, neither the Hong Kong nor the Japan ETF connectivity schemes have yet started.
The China-Hong Kong master-feeder scheme has a relatively muted launch in August last year and does not yet have clear regulatory guidelines on products that may qualify for the scheme. Few new products were approved for the scheme since the initial group of ETFs was listed in October last year.
In May this year, the Shanghai and South Korea stock exchanges also agreed to establish a new cross-border ETF program similar to existing China-Japan and mainland China-Hong Kong ETF cross-listing schemes.
The model enables South Korean and Chinese fund groups operating ETFs in Shanghai or Seoul to link a locally listed strategy to one listed on the other exchange, giving access to local securities and broadening sales prospects outside the domestic market.
It is still unclear when the scheme will be launched and what ETF strategies will bring each exchange to the neighboring market, but industry experts predict that the flow of investment is likely to be dominated by South Korean investors investing in China-themed ETFs. .
The Shanghai Stock Exchange, which launched its first land-based ETF product in 2004, also set its focus on establishing cross-border ETF listing schemes with Switzerland and even Pakistan.
Between January and October this year, China saw a net inflow of Rmb241 billion in assets to land from global investors via the QFII scheme and equity linkage programs between Hong Kong and the two mainland stock exchanges in Shenzhen and Shanghai.
By the end of October, foreign investors held Rmb3.67tn of A shares in China, accounting for about 5 percent of the combined market valuation.
* Ignites Asia is a news service provided by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at ignitesasia.com.