China Grants U.S. Investors Indirect Access to Its Stock Markets

China Grants U.S. Investors Indirect Access to Its Stock Markets

Updated Nov. 7, 2013 5:47 a.m. ET

SHANGHAI—Beijing has approved the first U.S. exchange-traded funds that track stocks in mainland China, another step forward in opening the country’s capital markets to international investors seeking better exposure to the world’s second-biggest economy. The go-ahead was given to two domestic fund managers to sell China ETFs listed on theNew York Stock Exchange, NYX +0.78% two people with direct knowledge of the matter said Thursday. These will be the first outside Hong Kong, where global money managers can buy similar products.Until now, the only way for offshore investors to get into China was either by buying Chinese companies listed overseas, mainly in Hong Kong, or to apply for a quota that allowed direct access to the mainland’s markets.

While international investors are queuing up to get into the fast-growing emerging market, Chinese stocks are notoriously volatile and have performed badly in recent years. The benchmark Shanghai index slumped to a four-year low in June. Shares have ticked up in recent months amid signs of improving economic growth, but worries about non-performing loans at Chinese banks still dog the market.

Approval was given to China’s Bosera Asset Management Co. and Harvest Fund Management, both among China’s biggest asset managers, which already offer similar products in Hong Kong.

Bosera has partnered with New York-based Krane Funds Advisors to sell an ETF that will track the broad MSCI China A Share index, a measure of more than 460 stocks of large and medium-sized companies. Harvest Fund Management partnered with DeutscheDB1.XE -0.16% Asset & Wealth Management for its ETF, which will track the CSI 300 index of the country’s biggest 300 stocks.

The ETFs have two advantages for investors over investing in Hong Kong-listed stocks of Chinese companies. One is they’ll give exposure to companies only available in mainland China, like the country’s largest auto maker by sales, SAIC Motor Corp., and the nation’s largest liquor manufacturer in terms of market value, Kweichow Moutai Co. The other advantage is that U.S. investors will be able to take a punt on Chinese stocks during New York trading hours and won’t have to wait until Chinese markets open.

The launch of the two ETFs falls under the Renminbi Qualified Foreign Institutional Investors program that allows offshore yuan to be invested in the country’s capital markets. It may also inject much-need cash into the domestic stock market while avoiding swelling the country’s already hefty $3.66 trillion foreign-exchange reserves, the largest in the world.

The move could also pave the way for Chinese fund managers to offer similar products in other markets around the world.