The government-backed Financial Services Development Council (FSDC) published a report on Tuesday which made several recommendations to help boost growth in Hong Kong’s ETF market.
Hong Kong was one of the first jurisdictions in Asia to list ETFs and currently has 100 ETFs listed in the city, with underlying assets ranging across local and overseas regions.
Chairman of the FSDC Laura Cha pointed out that markets in other jurisdictions have recently enhanced their ETF platforms.
Innovation
“Hong Kong’s leadership position within Asia has been overtaken by Tokyo and Shanghai, as they have introduced more innovative products,” she said.
“Action must be taken to enhance the competitiveness of Hong Kong’s ETF platform.”
Cha said Hong Kong is well positioned to support a “thriving” ETF market, partly due to its cross-border cooperation with Mainland China which, she argued, can open up opportunities for the ETF industry.
The report’s recommendations include:
- Encouraging ETF issuers, distributors, the Securities and Futures Commission (SFC), the Stock Exchange of Hong Kong and the government to jointly promote investor education on ETFs
- Improving ETF distribution channels
- Inclusion of ETFs in the Mutual Recognition of Funds (MRF) initiative between Mainland China and Hong Kong
- Including ETFs as investible securities under the Shanghai‐Hong Kong Stock Connect scheme for ‘southbound’ investment
- Nurturing local expertise and talent to develop Hong Kong into an ETF manufacturing hub
- Broadening the ETF product range by cross-listing
- Enhancing communication between the industry and the SFC
- Expanding the double taxation agreement network to other territories
Global exposure
“We believe the capital outflow from Mainland China will first benefit Hong Kong listed ETFs as Mainland Chinese investors can easily get international exposure through Hong Kong’s ETFs,” the report reads.
“This can help improve the liquidity and assets under management, which are seen as the most critical issues for the growth of ETFs.
“While the lack of distribution channels remains a challenge, a regional fund passport in Asia could also create a substantial impact on the success of ETFs.”
