First China ETF traded in yuan-HKD to debut in Hong Kong

HONG KONG, Oct 9 (Reuters) - Chinese asset management firmHarvest Global Investments will launch its exchange-traded fund(ETF) denominated in yuan at the Hong Kong Stock Exchange onFriday, the first listed financial product to be traded in bothyuan and the Hong Kong dollar.

The physical ETF, which tracks the MSCI China A Index, will invest directly in China's domestic stockmarket with a quota of 2 billion yuan ($318.11 million) underthe renminbi Qualified Foreign Institutional Investor (RQFII)scheme. The yuan currency is also known as the renminbi.

It is the fourth A-share ETF denominated in yuan, followingthose managed by China AMC, E-fund and CSOP Asset Management,and will be the first financial product to be traded in both theHKD and yuan.

As the Chinese government accelerates the roll-out offavorable policies to promote the worldwide use of its currency,the Hong Kong stock exchange is also eager to attract morefinancial products denominated in yuan to be listed in the city.

China introduced the RQFII scheme in 2011 with an initialquota of 20 billion yuan. It raised that to 70 billion yuan thisyear, in a move to attract more foreign investors to yuan assetsas onshore product returns are generally higher than offshore.

The first batch of RQFII quotas were distributed among 21brokerage and fund houses and invested mainly in the mainlandbond market. The added quotas are set to be used for yuan ETFs.

So far there are 41 yuan bonds totalling 66 billion yuan,four yuan ETFs totalling 11 billion yuan and one yuan realestate investment trust (REIT) listed on the Hong Kong bourse.

As for Harvest's ETF, the creation and redemption of newunits in the primary market are in yuan only. In the secondarymarket, trading prices of units in the two currencies may bedifferent and will be settled in yuan and HKD, respectively.

The 10 largest constituents of the MSCI China A Indexrepresented approximately 17.58 percent of the marketcapitalisation of the index as of Sept. 28, with Ping AnInsurance , China Merchants Bank andChina Minsheng Bank as the top three.

($1 = 6.2872 Chinese yuan)

(Reporting by Michelle Chen; Editing by Jacqueline Wong)

((michelle.chen@thomsonreuters.com)(+852 2843 6587)(ReutersMessaging: min.chen.thomsonreuters.com@reuters.net))