Hang Seng prepares to unveil cross-border index

Representatives of Hong Kong’s Hang Seng are busily meeting investors as it prepares to launch a cross-border index tracking both A-share and H-share listed Chinese stocks.

Staring on July 22, the Hang Seng China A/H Smart Index will track stocks listed on the Shanghai and Hong Kong exchanges, featuring whichever company's shares are trading at a lower price.

Vincent Kwan, general manager of the Hang Seng Index, confirms it is meeting renminbi qualified foreign institutional investors (RQFIIs), qualified foreign institutional investors (QFIIs) and qualified domestic institutional investors (QDIIs) who may be interested in launching products linked to the new index.

Market players expect Hang Seng Investment Management, sister company of Hang Seng Indexes, to be among RQFII holders looking to launch an ETF linked to the index, although Kwan declines to comment.

But he does suggest that the timing for launching a cross-boarder index is ideal, with China’s securities regulator continuing to issue more RQFII and QFII quota.

Since the launch of the QFII scheme in 2003, China’s State Administration of Foreign Exchange had awarded $43.5 billion quota to 207 QFII holders, while 30 RQFII holders have been granted Rmb105 billion ($17.1 billion) since 2011.

In June, Hang Seng Investment Management became the first non-Chinese fund house to obtain an RQFII licence from the China Securities Regulatory Commission (CSRC) after the regulator opened the RQFII programme to Hong Kong-registered financial institutions in April, as reported.

But one RQFII recipient tells AsianInvestor he is not convinced that the Hang Seng Index will be able to partner onshore Chinese fund managers, who face strict regulations.

“A QDII exchange-traded fund which invests in two different markets is not prohibited under the current regulation," he notes. "However, leaders from the CSRC want to develop QDII at a gradual pace and will probably prefer [mainland fund managers] to focus on a single market first,” he adds, noting it will be easier to launch such products from Hong Kong.

Last December, China Exchanges Services Company (CESC), a subsidiary of the exchanges in Hong Kong, Shanghai and Shenzhen, rolled out a cross-border index, which comprises 80 of the largest and most liquid stocks on the three exchanges.  

Since then, China AMC, CSOP and E-Fund have been granted licences to develop products based on the CES China 120 Index, with the first product expected to launch in the third quarter of this year.