Chinese mainland, Hong Kong expand financial cooperation with Swap and ETF connects
Published: Jul 04, 2022 11:49 AM Updated: Jul 04, 2022 11:43 AM
A view of Hong Kong Photo: VCG
A view of Hong Kong Photo: VCG

In a sign of deepening financial cooperation between the Chinese mainland and Hong Kong Special Administrative Region amid the 25th anniversary of Hong Kong's return to the motherland, the financial authorities from both sides jointly announced the launch of Swap Connect on Monday, while the inclusion of exchange traded funds (ETFs) into Stock Connect takes effect on the same day.

Experts said that the content of the connect between the mainland and Hong Kong SAR has been further enriched, which will further promote mainland capital market reform for higher-level opening-up and cement Hong Kong's status as an international financial center.

The People's Bank of China, the Hong Kong Securities and Futures Commission and the Hong Kong Monetary Authority (HKMA) on Monday jointly announced Swap Connect - a new initiative facilitating mutual access between interest rate swap markets in Hong Kong and the mainland, providing a convenient and secure channel for overseas investors to trade interest rate swap products in the mainland.

Eddie Yue, chief executive of the HKMA, said that Swap Connect will create synergy with Bond Connect to facilitate global investors' management of interest rate risks for their bond investments on the mainland.

"The scheme will add to the depth and breadth of the opening-up of the mainland financial markets. It will also create more opportunities for financial institutions in Hong Kong and strengthen Hong Kong's status as a risk management center," Yue was quoted as saying in a statement on HKMA website.

The relevant infrastructure institutions in Hong Kong and the mainland will actively take forward the development work, with a view to launching the program in six months.

On the same day, the inclusion of ETFs into Stock Connect between the mainland and Hong Kong also takes effect, greenlighting a total of 87 ETFs that are eligible for the ETF Connect.

With the inclusion, trading of eligible Shanghai Stock Exchange-listed ETFs through Shanghai Connect and trading of eligible Shenzhen Stock Exchange-listed ETFs through Shenzhen Connect will be, for the first time, open to all Hong Kong and overseas investors including institutional and individual investors.

The inclusion of ETFs into Stock Connect will make it significantly more convenient for Hong Kong and overseas investors, which is expected to bring additional capitals in large-scale to the A-share market, Yang Delong, chief economist at Shenzhen-based First Seafront Fund Management Co, told the Global Times.

To strengthen Hong Kong's role as a global financial center, the city must stay close to the country's needs, make good use of government policies and its own advantages, as well as serve as the intersection of internal and external circulation, Hong Kong SAR Chief Executive John Lee Ka-chiu said at a forum on Bond Connect on Monday.

By May this year, overseas institutions held around 3.74 trillion yuan ($559.1 billion) worth of Chinese bonds, four times the level prior to the Bond Connect being launched in 2017.