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Hong Kong Takes to Exchange-Traded Funds


The Hong Kong Exchanges and Clearing Ltd. will soon launch a "wide" range of exchange-traded funds, according to Scott Sapp, a spokesperson for the exchanges. Hong Kong Exchanges and Clearing Ltd. runs Hong Kong's stock and futures market.

The success of Hang Seng Index Tracker Fund, an exchange-traded fund which was launched last year by the Hong Kong government, prompted the exchanges to consider offering a wider range of exchange-traded funds, said Sapp.

"The introduction of the Tracker Fund reflects the market demand for funds with benchmark indices as their underlying assets," he said.

The Hong Kong government launched the Tracker Fund in November 1999. Shares of the fund are traded on the Stock Exchange of Hong Kong just like common stocks. The aim of the fund is to replicate the performance - in both yield and price - of the Hang Seng Index. The Tracker Fund had total assets of US$3.5 billion as of June 30.

"HKEx is currently exploring opportunities in the areas of exchange-traded funds and international benchmark financial derivatives and is open to cooperation opportunities with different index compilers and fund houses," said Sapp. A recent licensing agreement between HKEx and Morgan Stanley Capital International paves the way for the introduction of futures and options contracts based on the MSCI China Free Index, he said.

After selecting which exchange-traded funds to launch, HKEx will seek approval from Hong Kong's Securities and Futures Commission, said K.C. Kwong, chief executive of HKEx. There is no specific timetable for the launching of the exchange-traded funds, he said.

HKEx is trying to build on a good thing, said Gary Gastineau, managing director of exchange-traded product development for Nuveen Investments of Chicago.

"The [Tracker Fund] is relatively an active trader," he said. "It's not as active - in terms of dollar value of shares traded - as the [Standard & Poor's Depository Receipts Fund] or the [Nasdaq-100 Index Fund] but it compares pretty favorably to some of the less-active funds [in the US]. That, I think, is a significant success and my guess is that they are trying to build on that success."

The rest of the world is likely to catch up quickly to the U.S. in its development of exchange-traded funds, said Tienan Zheng, a senior analyst with Cerulli Associates of Boston.

But, the stock market in mainland China will not be launching exchange-traded funds any time soon, since it is still in a nascent stage, according to Zheng.