This November marked the 25th anniversary of the Hong Kong ETF market! Over the past quarter-century, the market has transformed into a robust marketplace with 195 products and a market capitalisation of $463 billion (as at end-November).
Laying the foundation
In 1999, the first ETF in Hong Kong was listed. In its early years, the industry laid a strong foundation by introducing core products across major asset classes, such as broad-market Hong Kong equity, A-shares, bonds, and gold. These foundational offerings provided investors with diverse options and set the stage for future growth.
As the market grew more sophisticated, it entered a significant phase of product diversification and achieved numerous “firsts”. For example, we welcomed the listing of the world’s first A-share ETF (2004), Asia’s first bond ETF (2005), Hong Kong’s first Leveraged and Inverse (L&I) Products (2016), and more recently, Asia’s first virtual asset (VA) ETFs.
Timeline of the first listings
The recently launched VA ETFs hold exciting opportunities for investors. Following the listings of Asia’s first batch of Bitcoin and Ether futures ETFs on HKEX in 2022, we welcomed Asia’s first Spot VA ETFs in April 2024 and Asia’s first Bitcoin inverse product in July 2024. Today, there are ten VA ETPs available for trading at HKEX, representing a market cap of $5.5 billion (as at end- November).
A new era of rapid growth
With an expanding product portfolio, the last five years have ushered in a new era of rapid growth for the Hong Kong ETF market – the average daily turnover (ADT) has surged at a compound annual growth rate of 30% during the period, reaching $18.7 billion in the year to end-November. This rapid expansion has been fueled by continuous enhancements to the market structure that have effectively boosted liquidity and reduced trading costs for investors. Notably, the new spread table introduced in 2020 has effectively reduced tick sizes by up to 80%, which in turn significantly narrowed bid-ask spreads.
Growth in ETF ADT (in HK$ billion)
Another key milestone in the development of Hong Kong’s ETF landscape was the launch of ETF Connect on 4 July 2022. The initiative unleashes fresh liquidity into the Hong Kong market through Southbound trading and allows international investors to access unique themes in the China market through northbound ETFs. After the expansion of ETF Connect in July this year, there are now a total of 242 eligible ETFs in Stock Connect. In November, the ADT for Northbound trading was RMB 4.0 billion, while Southbound trading saw an ADT of HK$4.4 billion.
A bright future ahead
The Hong Kong ETF market is gearing up to leverage new technologies and broaden its global reach. HKEX has recently announced plans to digitise and automate the in-kind creation and redemption process for ETPs using a web-based platform by 2025, with an aim to increase market efficiency and support the growth of secondary market activity for ETPs.
Additionally, the market’s international footprint is expanding, with Saudi Arabia emerging as a promising source of growth. Recently, two ETFs tracking Hong Kong stocks were listed in Saudi Arabia, and quickly rose to become two of the top three most-traded ETFs in Saudi. This enthusiastic reception underscores the strong interest in Hong Kong market exposure and the opportunity to attract additional capital to our ETF market.
As we look ahead, Hong Kong’s ETF market is set to continue its path of innovation and expansion. By diversifying our product ecosystem, enhancing market structure, and broadening our investor base through international partnerships, our ETF market is well-positioned for further growth. Join us in this exciting journey and explore the opportunities Hong Kong-listed ETFs have to offer: www.hkex.com.hk/ETP<http://www.hkex.com.hk/ETP>
