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

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

The physical ETF, which tracks the MSCI China A Index , will invest directly in China's domestic stock market with a quota of 2 billion yuan ($318.11 million) under the 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, following those managed by China AMC, E-fund and CSOP Asset Management, and will be the first financial product to be traded in both the HKD and yuan.

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

China introduced the RQFII scheme in 2011 with an initial quota of 20 billion yuan. It raised that to 70 billion yuan this year, in a move to attract more foreign investors to yuan assets as onshore product returns are generally higher than offshore.

The first batch of RQFII quotas were distributed among 21 brokerage and fund houses and invested mainly in the mainland bond 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 real estate investment trust (REIT) listed on the Hong Kong bourse.

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

The 10 largest constituents of the MSCI China A Index represented approximately 17.58 percent of the market capitalisation of the index as of Sept. 28, with Ping An Insurance , China Merchants Bank and China Minsheng Bank as the top three.

($1 = 6.2872 Chinese yuan)

(Reporting by Michelle Chen; Editing by Jacqueline Wong)

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