Author: Hu Huaxiong
On July 4th, the Hong Kong and A-share markets will usher in a historic event!
According to relevant arrangements, ETF trading under the Connect will officially start on July 4, 2022.
On the northbound side, after the 83 northbound eligible ETFs are included in the initial list, the Northbound Land Connect subject matter will become both stocks and ETFs, enriching the types of interconnection subjects.
According to statistics, the total size of the above-mentioned 83 A-share market ETF funds exceeds 600 billion yuan, and the ETF market is expected to usher in large-scale incremental funds.
In terms of southbound trading, the inclusion of 4 Hong Kong stock ETFs in Hong Kong Stock Connect has further enriched the types of targets for southbound Hong Kong Stock Connect.
ETF trading under the interconnection is about to set sail, and the official trading on Monday
According to relevant arrangements, ETF trading under the Connect will start on July 4, 2022 (Monday).
Earlier, the China Securities Regulatory Commission and the Hong Kong Securities Regulatory Commission issued a joint announcement.
The announcement stated that since the China Securities Regulatory Commission and the Hong Kong Securities Regulatory Commission issued a joint announcement on May 27 this year, the regulators of the two places have worked together on the preparations for the inclusion of ETFs in the interconnection.
At present, relevant business rules, operational plans and regulatory arrangements have been determined, and the technical system is ready.
The announcement stated that the China Securities Regulatory Commission and the Hong Kong Securities Regulatory Commission have reached a consensus on the arrangements for cross-border regulatory cooperation and investor education cooperation involved in the inclusion of ETFs in the Connectivity. Strengthen law enforcement cooperation, crack down on various cross-border violations of laws and regulations, promptly and properly handle major or emergencies, maintain the normal operation order of interconnection and interoperability, and protect the legitimate rights and interests of investors.
The announcement also stated that the exchanges, securities trading service companies and registration and clearing institutions in the two places should perform various interconnection responsibilities in accordance with the law, and organize all parties in the market to orderly carry out the business related to the incorporation of ETFs into interconnection.
Securities companies (or brokers) shall abide by relevant regulatory provisions and business rules, strengthen internal controls, prevent and control risks, provide investor education and services, and effectively safeguard the legitimate rights and interests of investors.
Investors should fully understand the differences in laws and regulations, business rules and practical operations between the two markets, prudently assess and control risks, and rationally carry out investments related to connectivity.
The data shows that the number of ETFs that can be traded in the north is much more than the number of ETFs that can be traded in the south.
So, what kind of investors can participate in ETF trading under Northbound Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect?
According to the introduction of the Hong Kong Stock Exchange, after ETFs are included in Shanghai and Shenzhen Stock Connect, all Hong Kong and overseas investors (including institutional and individual investors) can trade eligible SSE-listed ETFs under Shanghai Stock Connect and Shenzhen Stock Connect. Eligible SZSE-listed ETFs under
In addition, the Hong Kong Stock Exchange will conduct regular adjustments and inspections, and ETFs listed on the Shanghai Stock Exchange and ETFs listed on the Shenzhen Stock Exchange that meet all the following conditions will be included as eligible ETFs:
(1) The relevant ETF must be denominated in RMB, and the average daily asset size of the last six months shall not be less than RMB 1.5 billion;
(2) The relevant ETF must have been listed for not less than six months;
(3) The tracked underlying index has been released for one year;
(4) Among the underlying indices to be tracked, the weight of stocks listed on Shanghai Stock Exchange and Shenzhen Stock Exchange shall not be less than 90%, and the weight of Shanghai Stock Connect and Shenzhen Stock Connect stocks shall not be less than 80%;
(5) The underlying index to be tracked or its compilation plan must meet any of the following set of conditions: (a) Applicable to a broad-based stock index: the weight of a single constituent does not exceed 30%.
(b) Applicable to non-broad-based stock indices: the number of constituent stocks is not less than 30; the weight of a single constituent security does not exceed 15% and the total weight of the top five constituent securities does not exceed 60%; and the total weight ratio is more than 90% The average daily turnover of the constituent stocks in the last year is in the top 80% of the stocks listed on the stock exchange where they are located.
It is worth noting that when a qualifying ETF meets any of the following conditions during subsequent periodic adjustment and inspection, it will be designated as a sell-only security and will be suspended from buying:
(1) The average daily asset size of the relevant ETF in the last six months is less than RMB 1 billion;
(2) Among the underlying indices being tracked, the weight of stocks listed on the Shanghai Stock Exchange and Shenzhen Stock Exchange is less than 85%, or the weight of Shanghai and Shenzhen Stock Connect stocks is less than 70%;
(3) The underlying index to be tracked and its compilation plan meet any of the following conditions:
(a) Applicable to broad-based equity indices: a single constituent has more than 30% weight.
(b) Applicable to non-broad-based stock indices: the number of constituent stocks is less than 30; the weight of a single constituent security exceeds 15%, or the total weight of the top five constituent securities exceeds 60%; The top 80% of the constituent stocks listed on the stock exchange where their weights account for less than 90%.
There will be no delisting adjustment period for eligible northbound ETFs.
If an Eligible ETF is delisted from the Shanghai Stock Exchange or Shenzhen Stock Exchange, it will no longer be a China Connect Securities from the date of delisting and will be removed from the Eligible Securities List, which means that orders after the ETF is delisted will not be accepted.
The fund manager will liquidate the assets for the delisted ETF in accordance with the principles stipulated in the "Securities Investment Fund Law of the People's Republic of China", and distribute the cash obtained from the liquidation to investors who still hold shares of the ETF through HKSCC.
In addition, eligible A-shares and ETFs of Shanghai and Shenzhen Stock Connect will share the same daily quota for northbound trading.
Under Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect, the daily quota for northbound routes is RMB 52 billion each, and the daily quota for southbound routes is RMB 42 billion each.
What are the characteristics of more than 80 eligible ETFs?
According to the data of the Hong Kong Stock Exchange, the initial list of northbound eligible ETFs totals 83, including 53 from the Shanghai Stock Exchange and 30 from the Shenzhen Stock Exchange.
According to the reporter's statistics, the total net asset value of the above-mentioned 83 ETF funds exceeds 600 billion yuan, including nearly 20 ETF funds including Huaxia SSE 50ETF, Huatai Pineapple CSI 300ETF, and Southern China Securities 500ETF. The total net asset value exceeds 10 billion yuan. .
Judging from the listing time of the above-mentioned 83 ETFs, there are a few ETFs that have been listed for more than ten years.
Judging from the fund managers behind the 83 ETFs, there are many ETFs under GF Fund, China Asset Management, Cathay Fund and other fund companies.
CEBI's research point of view is that the northbound "ETF Connect" covers many products, covering core broad-based products such as ChiNext ETF and CSI 300 ETF, as well as representative biotech ETFs, chip ETFs, and carbon neutral ETFs. Industry-themed products are mainly concentrated in the fields of advanced manufacturing, digital economy and green and low carbon.
Since the relevant investment products and sectors are relatively scarce in the Hong Kong stock market, "ETF Connect" can help international investors to invest in the mainland market more conveniently, and also promote the internationalization of the RMB.
In the southbound direction, the Shanghai and Shenzhen Stock Exchanges announced that there are 4 Southbound ETFs eligible for inclusion, and the list is the same.
CEB International's research point of view is that the eligibility criteria for southbound ETFs are strict. Eligible ETFs must be denominated in Hong Kong dollars, with an average daily asset size of not less than 1.7 billion Hong Kong dollars in the past 6 months, and must not be synthetic ETFs or leveraged and inverse products. And the weight of stocks listed on the stock exchange tracking the index should not be less than 90%.
Therefore, the number of southbound funds included in "ETF Link" is limited this time, but it is expected that "ETF Link" will gradually expand in the future, which will help activate the ETF market in Hong Kong.