The Hong Kong arm of China Asset Management will today list a new exchange-traded fund that aims to use Shenzhen-Hong Kong Stock Connect, despite the fact that the cross-border equity trading link has not yet gone live.
ChinaAMC HK's new ETF will track the Hang Seng Composite SmallCap index, which comprises 192 stocks that are expected to be included in Shenzhen Connect. It will be the firm’s first ETF tracking non-mainland Chinese securities. Its two existing products focus on the CSI300 and the China A80, respectively.
Vincent Chen, a director at the firm, said only innovative ETFs can drive new inflows in Hong Kong today, but the market is dominated by China and Hong Kong blue-chip equity ETFs such those tracking the FTSE A50 or Hang Seng.
While the Shanghai-Hong Kong Stock Connect has mainly included blue-chip and large-cap stocks, the Shenzhen link is expected to focus on small- and mid-cap companies. For instance, the ChiNext board, the mainland’s growth enterprise market, is likely to be included.
ChinaAMC HK hopes Shenzhen Connect will launch in the first quarter of 2016, said Chen.
It had been expected to start this month, but has reportedly been delayed since August because regulators have prioritised stabilising mainland stock market over other initiatives, including the mutual recognition of funds scheme.
Both the Hong Kong and Shenzhen bourses say the operating platform is ready and they are awaiting the green light from the China Securities Regulatory Commission. HKEx chairman Chow Chung-Kong said the Shenzhen Connect could be implemented three to four months once the launch is officially announced.
The delay is also affecting other firms' plans. Shenzhen-based Invesco Great Wall Fund Management has readied an active strategy that will buy small-cap stocks in Shenzhen, and via the trading link, in Hong Kong.
It was the first Chinese asset manager to launch a Stock Connect mutual fund in April, after mainland mutual funds received permission to buy Hong Kong-listed shares.
The product raised Rmb11 billion ($1.7 billion) between March 26 and April 13. It was structured with the flexibility to include Shenzhen Connect once the link goes live.