through train

Through train not a steamroller, says CSOP

The Hong Kong-Shanghai through train is not due to arrive until October, but CSOP chief exec Ding Chen says it is already drawing interest in renminbi products.
Ding Chen, chief executive of CSOP
Ding Chen, chief executive of CSOP

The through train scheme that will allow mutual market access between Hong Kong and Shanghai is already boosting sales of renminbi products, according to the biggest asset manager in China’s renminbi qualified foreign institutional investor scheme, CSOP.

Countering criticism that the new scheme will cannibalise demand for existing investment products, Ding Chen, CSOP’s chief executive, told FinanceAsia that her firm is getting an increasing number of calls from investors asking about their exchange-traded fund (ETF) products as the trough train gets closer to arriving in Hong Kong — and she is confident the ETF market will not suffer.

“On the contrary, it will help to expand the market and inspire more interest in renminbi asset investments,” said Ding.

It is easy to understand why she thinks so. CSOP’s FTSE China A50 ETF hit a single-day trading record of Rmb3.7 billion ($600 million) in early August, when Hong Kong and Shanghai said they were about to start testing trading facilities for the through train.

The fund, which tracks an index of the top 50 companies by market capitalisation in the Shanghai and Shenzhen stock exchanges, has attracted Rmb7.5 billion of net inflow into the A-share market since mid-July.

The trough train will allow international investors to buy Shanghai A-shares through Hong Kong and, in return, lets mainlanders buy Hong Kong’s H-shares. Regulators announced earlier this year that the through train would officially start in October.

Before the new scheme, foreign investors had only two ways to access mainland stocks: the central bank’s interbank market programme and the qualified foreign institutional investors programme, or QFII (as well as RQFII).

There will be more than enough room for all three schemes as foreign investors are still clearly underweight China — the total amount of foreign investment allowed under the existing schemes is just Rmb1 trillion, compared with the Rmb60 trillion outstanding in China’s onshore capital market.

“China, among all emerging markets, should account for at least times of current portion in investors’ portfolio, given that it’s the second-largest economy in the world,” said Ding.

Foreign investors will need more than the through-train to achieve this scale of exposure as the new scheme is limited to a net Rmb13 billion a day, subject to an overall aggregate limit of Rmb300 billion.

“I believe that foreign investment in renminbi assets just began,” said Ding. “It’s like a single spark that can start a prairie fire — these investments will grow quickly.”

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