China is to announce soon the date of a breakthrough concept to connect two big stock markets: Shanghai and Hong Kong. The much-anticipated news was announced on Sunday and eased investors’ concerns the innovative scheme might have been suspended by Beijing.
“The China central government places great importance in the Shanghai-Hong Kong stock connect scheme and supports it very much” Leung Chun-ying, the chief executive of Hong Kong, said. The good news came straight after his meeting with Chinese President Xi Jinping in the capital of China. He also added that the relevant Chinese agencies will soon five more specific details with respect of the project’s formal launch date.
The major market participants like banks, brokerages and market regulators have indicated their readiness to participate in the scheme. However, the Chinese authorities unexpectedly have paused the launch date. Some investors started speculating, the scheme might face the fate of its predecessor in 2007.
The stock connect scheme is a huge milestone in the liberalization of China’s capital markets. It is aimed at allowing global investors to trade China shares via Hong Kong for the first time, while giving mainland investors access to Hong Kong-listed stocks, was set to go live on October 27.
Some observers blamed the Hong Kong’s pro-democracy “Occupy Central” protests and believed they may have been a reason for the delay. On the other hand more official sources cited technical factors.
Until last year, international and U.S. investors had no direct access to the universe of 2,500 stocks that are listed in mainland China. The stocks are called China A-shares and represent $4tr in market capitalization. At the same time they constitute around 67% of China’s stock market.
The first China A-share ETF to physically hold the shares came out a year ago in November.
Here are the top two most popular options to access the A-shares theme:
db X-trackers Harvest CSI 300 China A-Shares Fund (ASHR)
This is the father of all A-shares ETFs which was launched in November 2013. The portfolio is around $457m in size. The fund seeks to track the performance of the CSI 300 Index. The ETF’s top sector allocation are financials. The product charges investors with 0.8% of total expense ratio (TER). The same issuer also launched a small-cap version of the ASHR. The fund is called the db X-trackers Harvest CSI 500 China-A Shares Small Cap Fund (ASHS).
Market Vectors ChinaAMC A-Share (PEK)
PEK is significantly smaller than the ASHR as it holds around $30m of assets under management. It charges investors 0.72% of assets per year. Also Market Vectors came out with a mid- and small-cap A-share ETF called the Market Vectors ChinaAMC-ChiNext ETF (CNXT). It was launched on July 24. At the moment it is around $16m in size and charges 0.68% TER.
ETFs: ASHR, ASHS, PEK, CNXT, FXI, GXC, EWH
Source: Reuters, Bloomberg (credits to Eric Balchunas)
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