China took another major step in the opening up of its financial markets with the launch of the swap and exchange-traded fund connects between the Chinese mainland and Hong Kong. Capital market experts say that the connects are clear indication that China is even more committed to opening its markets to global investors.
The People's Bank of China, China's central bank, announced earlier this week that it will allow mutual access between the interest rate swap markets of Hong Kong and the mainland. The Swap Connect scheme is expected to be officially launched in six months.
Swap connect refers to an arrangement which will enable investors to participate in interest rate swaps in both markets. Initially Northbound Trading in swaps will commence, allowing investors from Hong Kong and other countries and regions to participate in the Chinese Mainland interbank financial derivatives market. Experts say the new measure are of immense benefit to international investors keen on tapping the huge Chinese market.
KEVIN LIU Managing Director, Research Department China International Capital Corporation Ltd "It will definitely help international investors to better manage their portfolios, by providing a tool to manage their interest rate risk. Using that product, it can help investors to hedge that risk. This in turn will help them to improve the attractiveness for investors to buy more Chinese bond assets."
Beijing has also launched the ETF Connect that taps into international investors' growing demand for onshore ETFs. ETF refers to exchange-traded fund products. They are products passively traded in basket stocks. ETF Connect refers to the connection for domestic and foreign investors to access the ETF products listed on onshore A-share markets and Hong Kong markets.
CICC's Liu says that the ETF Connect will increase the international appeal of the A-share market, especially for long-term investors interested in China's thematic stories and sectoral opportunities.
He adds that the swap and ETF connects indicates Beijing's firm resolve to further open up China's financial markets.
KEVIN LIU Managing Director, Research Department China International Capital Corporation Ltd "They are clear signals that Chinese policy makers will continue to promote efforts to further open its capital markets. Ever since the 2014 stock connect, the 2016 Shenzhen-Hong Kong stock connect, 2017 bond connect, and now the ETF connect and SWAP connect every step marked an important milestone to not just open domestic financial market to foreign investors, but also try to facilitate their investment in domestic markets."
Liu believes that the measure will lead to further liberalization of China's financial markets and increase the attractiveness of yuan-denominated assets. It will also go a long way in meeting Chinese investors' desire to diversify their portfolios globally. WANG HUI, CGTN, BEIJING.