Industry Updates

Vanguard: China trading restrictions will not impact ETFs

David Tuckwell

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ETFs holding Chinese shares will be unaffected by China’s new trading restrictions, Vanguard has said.

China’s regulator took the drastic steps of requiring shareholders to ask for special permission to sell more than 10-million-yuan of shares, in a bid to halt a plunge in stock prices triggered by the coronavirus.

The regulator also banned short selling and introduced controls over bid prices, in the most far-reaching trading restrictions since 2015.

Vanguard, Australia’s biggest ETF provider, said that its ETFs, including its China-heavy emerging markets ETFs, will be unaffected. This is because ETFs can hold derivatives like index futures in the place of Chinese shares.

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A Vanguard spokesperson explained: "Trading restrictions will have no impact as to how Vanguard will manage the fund. Vanguard will invest cash flows in the underlying China stocks as they come in.

"If the stock market is closed or restrictions are in place the portfolio managers will invest in derivatives to gain exposure to the underlying market, until such a time as they can directly access the underlying securities."

Index futures can be used as a substitute because they perform very similarly to the basket of Chinese shares the group’s funds hold, they said.

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