On the evening of June 24, the Securities Regulatory Commission issued the announcement on the inclusion of relevant arrangements for interconnection of traded open-end funds, which will be implemented from the date of promulgation. Subsequently, the Shanghai and Shenzhen exchanges issued measures for the implementation of the Shanghai-Shenzhen-Hong Kong Stock Connect, defining the relevant arrangements for the inclusion of ETF in the Shanghai-Shenzhen-Hong Kong Stock Connect for the first time, and standardizing the implementation arrangements for the relevant provisions of the securities trading behavior of the Shanghai-Shenzhen Stock Connect.

In addition, according to the China Securities News, the decision of the Securities Regulatory Commission on revising some provisions on the interconnection mechanism of stock markets between the mainland and Hong Kong stock markets was also examined and adopted on June 24 and will enter into force on July 25, 2022.

Industry insiders believe that regulating the return trading behavior of mainland investors is the main purpose of the CSRC this time.

About ETF interconnection and interworking

The announcement on the inclusion of traded open-end funds in the relevant arrangements for interconnection was solicited at the end of May and was officially finalized on June 24.

According to the draft for soliciting opinions issued by the Shanghai Stock Exchange and the Shenzhen Stock Exchange, the ETF that is eligible for inclusion in interconnection needs to meet:

1. It has been on the market for 6 months, and the tracking index has been released for one year.

2. The average daily assets of ETF in the mainland market in the past 6 months are not less than 1.5 billion RMB, and the constituent securities are mainly stocks of Shenzhen and Shanghai Stock Exchange.

3. Hong Kong market ETF has an average daily assets of HK $1.7 billion in the past six months, and the constituent securities are mainly Hong Kong stocks.

4. It does not belong to synthetic ETF, leverage and reverse products.

On the basis of previous studies, it is clear that the deadline for the first inclusion of Shanghai Stock Connect ETF, Shenzhen Stock Connect ETF and Hong Kong Stock Connect ETF is April 29th, 2022.

In addition, there are two key points: first, you can only buy and sell, but not for the time being; second, you must have a real-name system and exercise strict supervision over the so-called "fake foreign investment."

Capital trend of going northward

Capital going northward first suppressed and then rose this week, with a total net purchase of 4.064 billion yuan this week as of June 24.

From the point of view of the capital flow of the northward capital industry, on June 24, 33 industries were increased and 33 industries were reduced. Among them, 19 industries increased their holdings by more than 100 million yuan, and 12 industries reduced their holdings by more than 100 million yuan. Alcohol, biotechnology and consumer electronics were among the top net buyers, with net purchases of 2.302 billion yuan, 1.57 billion yuan and 1.457 billion yuan respectively, while banks, real estate and basic metals led the way, with net sales of 586 million yuan, 365 million yuan and 313 million yuan, respectively.

Increased holdings in northbound capital industry TOP10:

The amount of reduction in northward capital industry TOP10:

In terms of individual stocks, 836 shares were increased and 787 shares were reduced on June 24. Among them, 4 stocks increased their holdings by more than 10 million shares, while 14 stocks reduced their holdings by more than 10 million shares. Gree Electric Appliance, Oriental Fortune and Baotou Steel led the increase in the number of shares, increasing their holdings by 36.0291 million shares, 28.5125 million shares and 14.5263 million shares respectively, while Zijin Mining Group, China Rallway and China Minsheng Banking Corp led the way in reducing their holdings by 25.84 million shares, 22.5506 million shares and 17.1726 million shares respectively.

Increase the amount of northbound capital holdings TOP20:

Northbound fund reduction quantity TOP20:

From the perspective of the amount of northward capital holdings, on June 24, 37 stocks increased their holdings by more than 100 million yuan, and 14 stocks reduced their holdings by more than 100 million yuan. Among them, Guizhou Moutai, Gree Electric Appliances, and Yao Mingkangde were among the top net buyers, with net purchases of 1.475 billion yuan, 1.225 billion yuan and 904 million yuan respectively, while Sanhua Intelligent Control, Special Electric, and Zijin Mining Group ranked first in net sales, with net sales of 364 million yuan, 350 million yuan and 237 million yuan, respectively.

The amount of northward capital increase TOP20:

The amount of northbound fund reduction TOP20:

Judging from the change in the number of northbound capital holdings compared with the previous day, 158 stocks increased by more than 10% and 90 stocks decreased by more than 10%. Among them, Li Ziyuan, China porcelain Electronics and Child King increased their holdings by 443.08%, 370.11% and 316.40%, respectively, while Tibet Mining, transfer to Communications and Chenxin led the reduction, with a reduction of 72.08%, 62.45% and 51.55%, respectively.

Northbound capital holdings increase TOP20:

Northbound fund reduction TOP20:

Judging from the proportion of shares held by northbound funds, a total of 57 shares hold more than 10% of the shares. Among them, in terms of Shanghai Stock Connect, Bafang shares, Peraiya and Hongfa have the highest shareholding proportion, with 25.85%, 23.11% and 20.50% respectively; in Shenzhen Stock Connect, Easton, Pioneer Intelligence and Sanhua Intelligent Control have the highest shareholding proportions, with a shareholding ratio of 24.68%, 24.45% and 21.52%, respectively.

The proportion of shares held by Shanghai Stock Exchange TOP20:

General shareholding ratio of Shenzhen shares TOP20:

It is worth mentioning that since the beginning of this year, northward funds have bought more than 10 billion yuan in eight trading days, including four times in June. As of June 24, the total net purchase of northbound funds this month reached 62.729 billion yuan.

Far-reaching influence in the medium and long term

In the eyes of people in the industry, this is another landmark expansion event of the interconnection mechanism. Although the short-term direct impact may not be great, the medium-and long-term impact is far-reaching, which is not only conducive to enriching the variety of trading products and providing more convenience for foreign investment in China's capital market, but also promoting the integration of the capital markets of the two places. and the further opening up of China's capital market is also of great significance.

Lin Weibin, general manager of the Index Investment Department of Yi Fangda Fund, said that first of all, it enriches the investment variety and deepens the integration of the capital markets of the two places, which can enhance the attractiveness of the two markets for long-term allocation of funds. Secondly, expanding the investor group of China's ETF market abroad will help to improve the investor structure of the market, and the proportion of institutions among ETF investors is expected to increase in the future, promoting the healthy, stable and high-quality development of the capital market and asset management industry; finally, the inclusion of ETF is expected to further consolidate Hong Kong's status as an offshore RMB financial management center and promote the process of RMB internationalization.

Huaxia Fund said that the Shanghai-Shenzhen-Hong Kong Stock Connect is an important channel for the two-way opening of China's capital market, and the current capital carrier is mainly stocks, while ETF, as a collection of a package of stocks, has the characteristics of low cost, high efficiency and high transparency, which is in line with the sound investment logic of large funds. The market has been calling for ETF to be included in the interconnection mechanism for a long time, and the essence of ETF is stocks, so it is also the meaning of the interconnection mechanism.

People related to the Southern Fund said that the inclusion of ETF into interconnection will establish new capital channels in the form of products, so that investors from the two places can freely invest in each other's markets through ETF, further enrich the variety of interconnection transactions, and provide more investment opportunities for investors at home and abroad. First, it is conducive to overseas investors to further invest in the A-share market, omni-directional and multi-level promotion and sharing of the fruits of China's economic development, so as to promote the mainland ETF industry and capital market to become bigger and stronger. Second, it is conducive to enriching cross-border investment vehicles for domestic investors to meet the growing global asset allocation needs of domestic investors. Third, it is conducive to promoting the two-way opening of the capital market, promoting the opening up and internationalization of China's asset management institutions and capital market, and enhancing the international influence of China's capital market.

In addition, Boshi Fund said that the launch of ETF is undoubtedly another important measure to deepen interconnection and has a far-reaching impact. Although in the short term, due to the high standard of access to ETF and the existence of many similar ETF in the two markets, it may take more time to cultivate the market at the initial stage of ETF. However, in the medium and long term, ETF has further improved the categories of interconnection, given investors more investment tools, and promoted the integration of the mainland market and the Hong Kong market, which is of far-reaching significance to the further opening up of China's capital market and the further promotion of Chinese assets.