China will allow exchange-traded funds of Hong Kong shares to trade on the mainland exchanges “soon,” Hong Kong’s Secretary for Financial Services and the Treasury K.C. Chan said.
The process of getting Hong Kong stocks to trade on the Shanghai and Shenzhen exchanges as ETFs is “almost near completion,” Chan said in an interview in New York yesterday. “The final step would be for the regulators in China” to review companies’ applications to start the funds.
China is seeking to bolster financial markets as growth in the world’s second-biggest economy cools, foreign investment moderates and global investors become more risk averse. ETFs of Hong Kong-traded shares may draw investors into equity markets after the Shanghai Composite Index (SHCOMP) lost 22 percent in 2011.
“That is a very positive step,” Nick Good, head of Ishares for Asia-Pacific at BlackRock Inc. (BLK), the world’s largest asset manager, said in an interview in New York. “It’s further internationalization of the Chinese market and it invites Chinese investors with access to an asset class” they didn’t have before.
Hong Kong’s Hang Seng Index (HSI) has rallied 16 percent this year, compared with a 7.9 percent increase in the Shanghai benchmark. As of February, 645 mainland companies had raised $412 billion since 1993 by listing in Hong Kong, Chan said in a speech at a conference in New York yesterday.
Chan said he isn’t worried about the drop in yuan deposits in Hong Kong in December and January. Savings (HKRDTTL) denominated in the Chinese currency fell 2.1 percent to 576 billion yuan ($91 billion) in January after dropping 6.2 percent in December, according to the Hong Kong Monetary Authority.
The decline reflected less “one-sided” expectations for the yuan to appreciate against the dollar, Chan said. The “current amount of yuan deposits is sufficient to support the trading and interbank liquidity in Hong Kong,” he said.
Financing needs for companies with operations in China will drive increased sales of yuan-denominated bonds in Hong Kong this year, even if yields rise, Chan said. Demand for yuan loans from the city’s banks has also risen in 2012, he said.
Yuan bond sales in Hong Kong more than quadrupled to 151 billion yuan last year from 35.7 billion yuan in 2010, according to data compiled by Bloomberg.
HSBC Holdings Plc, the top underwriter for the notes, forecast in February that sales may reach 310 billion yuan this year. The average yield on dim sum debt in Hong Kong has risen 1.46 percentage points to 4.86 percent in the past year, according to a Bank of China Ltd. index.
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