On June 24, the China Securities Regulatory Commission issued the “Announcement on the Inclusion of Exchange-Traded Funds in the Connecting and Interconnection Relevant Arrangements” (hereinafter referred to as the “Announcement”) to further deepen the interconnection mechanism of stock market transactions between the mainland and Hong Kong, and promote the common development of the capital markets of the two places. develop. The “Announcement” will be implemented from the date of issuance. The Shanghai and Shenzhen Stock Exchanges and China Clearing have issued relevant rules and regulations.
Chen Li, chief economist of Chuancai Securities and director of the research institute, said in an interview with a reporter from Securities Daily that the inclusion of ETFs in the interconnection will inject vitality into the two markets. For Hong Kong stocks, the current overall P/E ratio of the Hang Seng Index is about 9.9 times, which is at a historically low level. After the inclusion of Hong Kong Stock Connect ETFs in China Connect, it is expected to strengthen some undervalued Hong Kong stocks; for A shares, the inclusion of ETFs in China Connect reduces foreign investment. The threshold is expected to attract more foreign capital to the A-share market.
Improve the ecology of Shanghai-Shenzhen-Hong Kong Stock Connect
On May 27, the China Securities Regulatory Commission and the Hong Kong Securities Regulatory Commission issued a joint announcement, agreeing that the two exchanges will include eligible ETFs in the interconnection. On the same day, the China Securities Regulatory Commission solicited opinions from the public on the “Announcement”, and the Shanghai and Shenzhen Stock Exchanges and China Settlement solicited opinions on the relevant rules for ETFs to be included in the interconnection target.
The “Announcement” consists of 5 articles. The first is to clarify that the trading interconnection mechanism between the mainland and Hong Kong stock markets will be extended to exchange-traded funds. The second is to clarify the relevant institutional arrangements with reference to the stock interconnection. The relevant requirements for securities companies and public fund managers are to clarify the relevant arrangements for business implementation rules.
Dong Dengxin, director of the Institute of Finance and Securities at Wuhan University of Science and Technology, told the “Securities Daily” reporter that the inclusion of ETFs in China Connect has enriched the investment portfolio of the Shanghai-Shenzhen-Hong Kong Stock Connect market, which can increase investment opportunities for foreign capital to participate in the A-share market and attract foreign investment. ETFs have low transaction costs and can diversify risks. After the interconnection, the scale of foreign capital entering A shares will further increase.
Gui Haoming, chief market expert of Shenwan Hongyuan, told the “Securities Daily” reporter that the inclusion of ETFs in the interconnection has facilitated investment by domestic and foreign investors. A-shares will also attract more foreign inflows. Overseas capital often does not know much about the situation of local enterprises. ETF investment can reduce the difficulty of investment to a certain extent, and at the same time, it can also improve the ecology of Shanghai-Shenzhen-Hong Kong Stock Connect and enrich investment varieties.
The “Implementation Measures” are mainly revised in two aspects
On June 24, the Shanghai and Shenzhen Stock Exchanges issued the “Measures for the Implementation of the Shanghai-Hong Kong Stock Connect Business of the Shanghai Stock Exchange (Revised in 2022)” and the “Measures for the Implementation of the Shenzhen-Hong Kong Stock Connect Business of the Shenzhen Stock Exchange (Revised in 2022)” (collectively referred to as the “Implementation Measures”). “), “Required Terms of the Shanghai Stock Exchange’s Southbound Trading Risk Disclosure Statement (Revised in 2022)”, “Shenzhen Stock Exchange Southbound Trading Risk Disclosure Statement (Revised in 2022)” (collectively referred to as “Risk Disclosure Statements Required”) Provisions”) and the mandatory terms of the relevant Southbound Stock Connect Entrustment Agreement. In addition, China Clearing issued the “Implementation Rules for Registration, Depository, and Settlement Services of the Mainland and Hong Kong Stock Market Interconnection Mechanism (Revised in June 2022)” to regulate the inclusion of ETFs in the registration and settlement business of the interconnection.
Specifically, the main revisions of the “Implementation Measures” include two aspects. One is to clarify the specific arrangements for ETFs to be included in the interconnection target. Include eligible stock ETFs on the Shanghai and Shenzhen Stock Exchanges and the Stock Exchanges into the scope of the Shanghai-Hong Kong Stock Connect. The details are as follows: The Shanghai and Shenzhen Stock Exchange ETFs have an average daily asset size of RMB 1.5 billion in the past six months, and their constituent securities are listed in Shanghai and Shenzhen Stock Exchanges. The underlying stocks of Southbound Trading are mainly; the average daily assets of ETFs on the Stock Exchange in the past six months have reached 1.7 billion Hong Kong dollars, and their constituent securities are mainly the underlying stocks of Southbound trading, which cannot belong to synthetic ETFs, leveraged and inverse products.
In addition, the inclusion of the underlying ETF must meet the requirements of listing for 6 months and the release of its underlying index for one year at the same time. In principle, the underlying ETF is adjusted every six months. The deadline for the first review of Shanghai-Shenzhen Stock Connect ETFs and Hong Kong Stock Connect ETFs is April 29, 2022. The Shanghai and Shenzhen Stock Exchange Securities Trading Service Company and the Stock Exchange Securities Trading Service Company will notify separately the list of ETFs included in the Hong Kong Stock Connect and Shanghai-Shenzhen Stock Connect for the first time and the effective date.
The second is to standardize the return journey of mainland investors to participate in Northbound trading. The scope and definition criteria of mainland investors were released, and it was clarified that investors in Shanghai and Shenzhen Stock Connect did not include mainland investors. In order to give Hong Kong brokers and other stock exchange participants sufficient preparation time, after the relevant regulations come into effect on July 25, 2022, a one-year transition period will be set up for mainland investors who have opened trading rights for Shanghai and Shenzhen Stock Connect.
Wind information data shows that as of June 24, there were a total of 564 stock ETFs listed on the Shanghai and Shenzhen stock exchanges, of which 108 were worth more than 1.5 billion yuan. Chen Li predicts that the number of funds that meet the requirements of the average daily asset scale in the past six months of 1.5 billion yuan and the release of the underlying index for one year will be 60 to 80.
Chen Li said that with the inclusion of ETFs in the interconnection, it will bring more incremental funds to the A-share market, especially in the context of tightening overseas and relatively loose domestic policies this year, RMB assets are more attractive, and foreign investment in the second half of the year will be more attractive. It is expected to further flow to the domestic market, and the proportion of institutional investors is expected to further increase.
The China Securities Regulatory Commission said that in the next step, the China Securities Regulatory Commission will organize the Shanghai Stock Exchange, Shenzhen Stock Exchange, and China Clearing to steadily prepare for the inclusion of ETFs in the interconnection, and the official launch time will be announced separately.
(Editor in charge: Tan Mengtong)
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