Shenzhen-Hong Kong Stock Connect: What it means for ETFs

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The Shenzhen-Hong Kong Stock Connect, a programme that allows for mutual stock market access between the exchanges and which came into operation in December 2016, could include ETFs in 2017 – a move which would likely bolster demand for these products.

ETFs, bonds, and commodities were excluded from the programme initially, although regulators plan to extend it to cover these asset classes in the near future. It is not yet clear what the scope of inclusion would be – or whether this would include formats such as leveraged ETFs.

Nevertheless, including ETFs in the stock connect programme would widen the pool of investors in each territory, with greater demand boosting assets under management.

Besides more product choice, another possible benefit to investors is that heightened competition among providers will place downward pressure on fees, which are already trending lower.

ETFs and other passive investment products are gaining in popularity in Asia and other regions as investors look to reduce costs in the low return environment.
The Shenzhen-Hong Kong Stock Connect came into effect two years after a similar arrangement between the Shanghai and Hong Kong exchanges. Both programmes include daily trading quotas.