US investors given Chinese ETF access

Chinese regulator allows American investors indirect access to domestic stocks

China’s securities and foreign exchange regulator has given approval for two domestic fund managers to offer products to US investors, giving American investors indirect access to stocks traded on the Shanghai and Shenzhen exchanges.

The Wall Street Journal quotes two unnamed sources ‘with direct knowledge of the matter’, who say two domestic fund managers have been given permission to sell Chinese exchange-traded funds (ETFs) listed on the NYSE. The products will be the first available outside Hong Kong, home already to similar investment opportunities.

The fund providers in question are two of China’s largest asset managers. Bosera Asset Management has partnered with Krane Funds Advisors, based in New York, to sell an EFT called KraneShares that will track the MSCI China A Share Index, which measures more than 460 large and medium-sized companies. KraneShares’ managing director, Brendan Ahern, has since said the fund will ‘definitely’ launch by the end of the year and ‘hopefully’ by early December.

Beijing-based Harvest Fund Management, which has partnered with Deutsche Asset & Wealth Management, will offer an ETF that tracks an index of China’s 300 biggest stocks. A spokesman for Deutsche also reveals that the fund will launch with $108 mn in investor assets when it debuts on the NYSE, which the firm claims is the largest backing for any new equity ETF since 2007. Deutsche has chosen Goldman Sachs as the market maker for its new product.

Before now, foreign investors could gain access to Chinese companies only by buying shares in Chinese firms listed overseas – particularly in Hong Kong – or to apply for a quota that allows direct access to the country’s domestic markets.

ETFs, however, have two main advantages over Hong Kong-listed stocks for investors keen to grab a stake in Chinese companies. First, US stakeholders will be able to trade their Chinese stocks during NYSE trading hours, rather than waiting for the Shanghai trading floor to open. Second, investors will be able to gain exposure to domestic-exclusive companies that suit their portfolios.

The move could further open up the country’s capital markets and globalize its currency, the WSJ's sources add, with Chinese fund managers likely to offer similar products in other markets around the world in time.

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