Understand the Mainland ETF market before investing

ETF Connect
Stock Connect
Mainland investments

Author: Mr Chin12/08/2022

The ETF Connect was launched on 4 July 2022, allowing investors to trade eligible ETFs listed on the Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE) through Stock Connect. As the saying goes, chance favors the prepared mind. So, get prepared by understanding the Mainland ETF market before making any investment decisions.

People usually describe the Mainland market as "big". I think this is equally applicable to the Mainland ETF market. According to the respective reports published by the SSE and SZSE, as of the end of 2021, there were 406 and 228 ETFs traded on these two exchanges, respectively, with a total asset size of RMB 1,140 billion and RMB 270 billion, respectively.

Most of the ETFs listed in Hong Kong, Shanghai and Shenzhen are index tracking equity ETFs. Equity ETFs in Hong Kong offer investors a variety of options, including ETFs that track indices of Hong Kong stocks, Mainland A-shares, Asia-Pacific stocks, and other overseas stocks.

Currently, there are approximately 40 Mainland A-share ETFs in Hong Kong. Most of these are tracking broad-based indices (i.e., indices with broad stock coverage that can reflect the performance of a certain market). Some are tracking sectoral or thematic indices.

You may wonder: If we can trade A-share ETFs in Hong Kong, why do we need to trade them in Shanghai and Shenzhen through Stock Connect?

A-share ETFs listed in Shanghai and Shenzhen, like in Hong Kong, mostly track broad-based indices. While there are A-share ETFs in Hong Kong, ETF Connect has provided Hong Kong and international investors with accessibility to a greater variety and number of Shanghai and Shenzhen-listed A-share ETFs to choose from.

Apart from ETFs tracking broad-based A-share indices, sectoral or thematic ETFs have also grown rapidly in the Mainland in recent years. They span a wide range of sectors and themes, such as semiconductors, defense industry, 5G communications, rare earths and broker-dealers. With green and sustainable finance on the rise, there are more ETFs tracking broad-based ESG indices, as well as green/ESG-thematic ETFs, such as new energy vehicles, photovoltaics, low carbon economy and Yangtze River protection.

There are over 600 ETFs listed in the Shanghai and Shenzhen markets, of which 83 ETFs are eligible for trading through Stock Connect at this stage. You can check the HKEX website for all eligible securities for northbound trading. Besides, if you are interested in trading ETFs listed on the SSE and SZSE through Stock Connect, you should learn about the relevant fees and trading arrangements.

Read more:

Inclusion of ETFs in Stock Connect