The first Luxembourg Ucits has been approved for Shanghai- Hong Kong Stock Connect, the pilot programme that provides mutual trading access between the Shanghai and Hong Kong stock markets.

Shanghai-Hong Kong Stock Connect offers an opportunity for Ucits to invest in A-shares listed on the Shanghai stock exchange alongside the existing investment schemes, such as QFII and RQFII.

A number of Luxembourg Ucits have submitted applications to the supervisory authority, said Camille Thommes, director general of the Association of the Luxembourg Fund Industry. 

“The Chinese equity market has grown to the second largest equity market in the world after the US. The Shanghai- Hong Kong Stock Connect programme therefore represents one of the biggest developments for foreign investors wishing to access this market, enabling them to trade Shanghai-listed shares via the Hong Kong stock exchange, while mainland investors can invest in Hong Kong shares via the Shanghai stock exchange.”

There are a number of factors which require careful consideration and appropriate solutions for those Luxembourg Ucits considering accessing this market through the Shanghai- Hong Kong Stock Connect.

Accounts opened by the depositary bank of the Ucits with a sub-custodian in Hong Kong must be segregated at the level of the Ucits' sub-funds or structured as Ucits client assets omnibus accounts of the Luxembourg depositary with that sub-custodian and the broker model involving delivery versus payment settlement must be chosen in order to limit counterparty risk.

Additionally, the prospectus will contain a specific disclosure to inform investors of the specific legal risks linked to compulsory requirements of the local CSDs, HKSCC and ChinaClear for custody of securities on a cross-border basis.

Luxembourg Ucits whose investment policy already permits exposure to A-Shares and which only need to adapt their prospectus and KIID to cater for the access through the Shanghai- Hong Kong Stock Connect will benefit from a fast-track procedure when filing their application with the supervisory authority, the Commission de Surveillance du Secteur Financier.