Japan, China sign agreement on ETF cross-investment program

Japan and China signed an agreement for a program that will make it easier for investors to buy exchange-traded funds listed in each other’s markets.

Under the program, a Japanese or Chinese firm would create an ETF that mainly invests in the other country’s listed ETFs, the Japan Exchange Group Inc. and Shanghai Stock Exchange said in a joint statement yesterday. Nomura’s asset management unit will partner with China Asset Management to participate in the project, Nomura Holdings Inc. said separately.

China is pressing ahead with plans to allow more foreign investors into its market, including those from Japan, before Xi Jinping makes his first visit to the country as president for the Group of 20 summit in June. The ETF program would allow some of the trillions of dollars stashed away by Japanese savers to flow into the world’s best- performing stock market.

The Shanghai Composite Index has risen almost 30 percent this year, the biggest gain among more than 90 global indexes tracked by Bloomberg. Inflows are expected to increase after MSCI Inc. said it will more than quadruple the weighting of China-listed equities in a benchmark index.

The ETF providers would need to obtain quotas under China’s Qualified Foreign Institutional Investor or Qualified Domestic Institutional Investor programs. Additional investment quotas for this program will be subject to special treatment, meaning approval will take less time than usual, the bourses said.

Hong Kong’s Securities and Futures Commission is discussing with Chinese authorities the possibility of dual-listed exchange-traded funds in China. But an ETF Connect is proving difficult to build, Christina Choi, SFC executive director and head of the investment products division, said last year. She cited issues including differences in cross-border settlement systems and operating timings. Bloomberg