China-South Korea ETF cross-listing scheme stalls

More than a year after Shanghai and South Korea stock exchanges signed an agreement to cross list exchange traded funds, issuers in China and South Korea say there has been no progress.

They say there has been no movement on the regulatory front and investor appetite for prospective ETFs in the scheme has been questioned.

In principle, the new scheme allows South Korean and Chinese fund firms launching ETFs in Shanghai or Seoul to link a domestically listed ETF to one listed on the other exchange, connecting two of Asia’s fastest-growing ETF markets.

The largest ETF providers in both markets signed up for partnerships in the scheme, including China Asset Management, Mirae Asset Global Investments, and Samsung Asset Management and CCB Principal Asset Management, a fund joint venture between US financial corporation Principal and China Construction Bank.

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However, a formal framework for the cross-listing scheme has yet to be announced by the exchanges, leaving participating firms in limbo and the project at a standstill.

China AMC, Mirae, KB Asset Management and Bosera Asset Management — all said there had been no progress.

“Shanghai and Korea stock exchanges are discussing launching the cross-border scheme on the same date for issuers whose ETFs track the common indices,” an official at the Korea Exchange said.

The two stock exchanges rolled out three common indices in December last year — CSI KRX China-Korea 50 Index, the CSI KRX China-Korea New Energy Vehicles Index and the CSI KRX China-Korea Semiconductor Index.

Aside from operational burdens, investor appetite for the proposed cross-listed ETFs is also uncertain. Investors in South Korea, for example, already have access to Chinese securities.

There were about 30 China-focused ETFs listed in South Korea out of 590 ETFs as of July 4, according to Korea Exchange data.

South Korea’s ETF assets reached Won72.8tn ($56.17bn) as of July 4, up more than 20 per cent from the previous year, according to Korea Exchange data.

China’s ETF market size stood at about $220bn, with more than 600 products as of end-2021, according to Shenzhen Stock Exchange data.