NASDAQ eyes Stock Connect index

November 14, 2014 10:48
NASDAQ is waiting to see whether the Hong Kong-Shanghai stock trading scheme will work as two indices or one. Photo: Bloomberg

NASDAQ is considering an index linked to the upcoming Hong Kong-Shanghai stock trading scheme after it resolves weighting-related issues.

"It's under consideration and we hope to be the first in the market to add A shares to the emerging market index," said Robert Hughes, vice president of global index group of NASDAQ OMX Group Inc., operator of the New York exchange.

Hughes said the company will have to see whether NASDAQ investors will be buying into a cheaper or a more expensive market.

Also, it needs to know whether Shanghai-Hong Kong Stock Connect will function as two separate indices or one, he told reporters Thursday.

The cross-border trading program will begin on Nov. 17, allowing investors in Hong Kong and Shanghai to trade stocks in each other's market.

The scheme covers 50 stocks listed in both markets.

Stock Connect has sparked speculation whether index compilers will include A shares in their emerging markets index.

Earlier this year, A shares failed to make it to the stock indices of STOXX Ltd., a Zurich-based compiler of global benchmarks.

This came after its United States-based rival, MSCI Inc., said on June 10 that it decided to exclude A shares from its Emerging Markets indices, citing concern by institutional investors over outstanding issues relating to China’s foreign investor schemes.

Another major compiler, FTSE Group, has no A shares in its Global Equity Index Series but is expected to include them within five years.

NASDAQ may launch exchange-traded fund products (ETFs) linked to Stock Connect.

"We expect ETFs will be included in the Stock Connect program in time," Hughes said.

"Currently, retail investors only take up 20 percent of the local ETF market while investment in the Chinese market only accounts for about 3 percent in the United States and Europe," he said.

Two ETFs based on NASDAQ indices were listed on the Hong Kong stock exchange on Thursday.

The products track the Hong Kong Banks Index and the Asia ex-Japan Dividend Achievers Index.

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Ayishah Ma is a financial reporter on Greater China issues.