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ETF investors plan China allocations

ChinaA large number of European and US investors plan to allocate to China’s capital markets through exchange-traded funds (ETFs) over the next year, research has suggested.

Brown Brothers Harriman (BBH), a custody bank, said 70% of these investors planned to make allocations to China’s markets, which have taken further measures to open up in recent years, such as through the Stock Connect programme.

The BBH research also found that the number of China-based investors planning to increase their investment allocations to ETFs had jumped significantly.

The bank found that 77% of mainland China investors were planning to make ETF investments over the next year – a steep increase on the 43% recorded in BBH’s 2018 survey.

Mainland China-based investors showed strong interest in accessing ETFs listed in Hong Kong. Close to 100% of them said they were interested in buying Hong Kong ETFs either through the Stock Connect or Mutual Recognition of Funds programme.

Over the Greater China area, 63% of investors were planning to allocate to ETFs in general.

The research covered 300 investors globally, including institutional investors and fund managers. A hundred of the respondents represented Greater China.

Chris Pigott, a senior vice president at BBH Hong Kong, said ETFs were becoming an increasingly important component of institutional investors’ portfolios across Greater China, and that regulatory development and enhanced ETF market infrastructure are areas of focus that will support growth.

The research also found that in Hong Kong and Taiwan, historical performance and ETF issuer – and not cost - were found to be the most important drivers in ETF selection. The lesser focus on cost is “defying global industry assumptions that cost is everything”, said BBH.

This sentiment was also found among US and European investors. But the top drivers for ETF selection in Mainland China were ETF issuer and index methodology.

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