The Tracker Fund Supervisory Committee on Tuesday (March 29) appointed Hang Seng Investments Management Limited (Hang Seng Investments) to replace State Street Global Advisors Asia Limited (State Street Global) as fund manager, which has been under management for more than 22 years. .
Looking back at the "past life and present life" of Tracker Fund, there are two exam questions that Hong Kong has gone through and faced - the former takes the financial turmoil sweeping across Asia as the background, challenges the traditionally defined free market, and tests the SAR government's market governance ability; the latter At the time of the anti-globalization crisis brought about by the game between China and the United States, when "politics" replaced "interests" as the primary consideration for development, Hong Kong also faced the problem of how to defend "financial sovereignty".
In the face of the Asian financial turmoil in 1998, the SAR government used hundreds of billions of foreign exchange funds to enter the market to support Hong Kong stocks and successfully repelled speculators. The Hong Kong stocks purchased by the government at that time were sold through the establishment of the "Treasury Fund".
(Associated Press)
born out of crisis
Tracker Fund was established in November 1999.
A year earlier, in response to the Asian financial turmoil, the SAR government used RMB 118 billion of the Exchange Fund to buy 33 stocks of the Hang Seng Index, and later established the Trafigura Fund to sell shares to minimize the impact on the market.
This financial turmoil originated from a currency crisis that has been brewing for some time.
Going back in time, the day after the return of Hong Kong’s sovereignty in 1997, the then vice-president of the Hong Kong Monetary Authority, Chen Delin, returned to his office and answered a phone call from the Bank of Thailand. .
He recalled in the article "Asian Financial Crisis: The Battle for Hong Kong's Financial Stability": "In the following months, the Thai baht depreciated by more than 50%, taking this as a gap, and a very destructive financial crisis swept across Asia. In a blink of an eye, Indonesia The dong, the Malaysian ringgit, the Philippine peso and the Korean won have fallen like dominoes.”
This currency crisis is aimed at the "linked exchange rate system".
In order to maintain the stability of the exchange rate, the monetary authorities generally use their reserves to buy and sell local currencies and US dollars. However, when foreign exchange speculators have borrowed a large amount of currency from local banks and then sell them intensively, if the monetary authorities have insufficient reserves, they will not be able to take orders, and they can only be forced to give up the linked exchange. system, the local currency exchange rate will also plummet, and speculators will exchange the local currency for US dollars and return it to the bank, earning a huge exchange rate difference.
Hong Kong implements the linked exchange system and the free flow of capital, which has naturally become the target of speculators.
In August 1997, speculators attacked the Hong Kong dollar for the first time. When they encountered the defense mechanism designed by the Monetary Authority, the interest rate of the Hong Kong dollar rose sharply. The overnight interest rate once reached as high as 300%. Speculators temporarily retreated from the battlefield due to insufficient short selling costs.
A year later, speculators adopted a "bilateral manipulation" strategy in response to the defense mechanism: establishing a large number of short positions in the spot and futures markets, and gradually borrowing HK$30 billion in the foreign exchange market at a relatively low cost.
Speculators came prepared, and the HKMA's automatic adjustment mechanism was obviously unstoppable. Therefore, the SAR Government decided to use the Exchange Fund to enter the stock and futures markets to counter the opponent.
On August 14, 1998, the Hong Kong government, the HKMA met with local brokerages, secretly set up stock and futures trading accounts, and started the market entry action for 10 trading days, mainly buying HSI constituent stocks and HSI futures. Short selling in foreign exchange and stock markets.
"On August 28, the last day of market entry, the selling pressure from speculators reached a peak. The trading volume on that day hit a record high of HK$79 billion. The HKMA was almost the only buyer. The open interest was as high as more than 150,000 contracts.” Chen Delin recalled, “Finally, the Hang Seng Index closed at 7,830 points, an increase of 18% from the beginning of the market entry action, and almost double the 4,000-point level locked by speculators.”
Under the currency crisis, the Hong Kong government and the Hong Kong Monetary Authority launched a full 10-day market entry operation to repel foreign exchange speculators.
(file picture)
Test market governance ability
The rescue was successful, but new problems followed.
The government has invested as much as 118 billion yuan in the market, involving 33 constituent stocks of the Hang Seng Index, which once accounted for 7% of the market value of Hong Kong stocks.
After speculators retreat, how can the government delist the market to minimize its impact on the market?
In order to solve this problem, the HKMA first established the "Exchange Fund Investment Company Limited" to manage the assets, and later packaged the assets in the "Exchange Traded Fund" (ETF) model, and innovatively adopted the "continuous offering mechanism" to distribute the assets in batches. Holding the share repurchase market - the establishment of the Transcript Fund is the first step of the selling plan. As of October 15, 2002, in addition to the 51.5 billion Hong Kong stocks held by the Exchange Fund for long-term investment, the government rescued stocks Tracker has returned to the market, involving about 140.4 billion HSI constituent stocks.
The establishment of Tracker Fund also opened up a precedent for "unit trust funds", expanded Hong Kong's long-term investment options, and opened up the exchange-traded fund market in Hong Kong and Asia, making the Hong Kong Stock Exchange one of the important exchange-traded product hubs in Asia. By the end of last year There are already 125 ETF products.
However, Tracker Fund is not without its "stains".
Because the Hong Kong government's measures to save the market have been criticized as "violating the principles of the free market", even Alan Greenspan, then the chairman of the US Federal Reserve, denounced the HKMA's actions in the House of Representatives as "erodes." Extraordinary credibility accumulated over the years".
Of course, these criticisms were overturned after the 2008 financial tsunami.
At that time, in order to maintain the stability of the financial system, governments and monetary authorities of many countries took action to rescue the market, and realized that once the market fails, government intervention is not only "important", but also "necessary".
During the subprime mortgage crisis in 2008, many governments and monetary authorities stepped in to rescue the market.
(Visual China)
Easy to be handsome in the wrestling
It can be said that with the return of Hong Kong, Tracker Fund has gone through many storms together and has always been the darling of Hong Kong investors.
But in the blink of an eye, more than 20 years have passed. In recent years, the discussion surrounding the Transcript Fund has even become a political issue that has been affected by Sino-US wrestling.
The reason why the current change of fund managers and the replacement of State Street Global by Hang Seng Investments is precisely because of a turmoil more than a year ago.
State Street Global is the first and only manager of Tracker Fund.
It itself is the largest institution in the management of ETF assets among Hong Kong ETF issuers, and according to statistics from the Sovereign Wealth Fund Research Institute, it is the third largest institution in the world in terms of assets under management, reaching US$4.14 trillion.
State Street has a wealth of management experience, so it's no wonder that Ying Fu hasn't changed anyone in the past 22 years.
However, it was not until November 2020 that an executive order issued by then US President Trump changed everything.
The order prohibits Americans from investing in certain Chinese companies, including Hong Kong-listed China Mobile, China Unicom and CNOOC.
State Street immediately announced that the Tracker Fund managed by it would comply with the relevant executive order and would not make new investments in prohibited stocks. This move undoubtedly caused Tracker, which tracks the constituent stocks of the Hang Seng Index, to deviate from the Hang Seng Index, causing an uproar in the city.
Ren Zhigang, a non-official member of the Executive Council and the first president of the HKMA, once publicly criticized that the Fund should closely follow the overall price trend of the constituent stocks of the HSI. If managers cannot buy and sell certain stocks, the fund cannot closely track the HSI Price trends are not suitable for management.
Two days later, State Street quickly turned to the page, announcing that Tracker Fund would resume relevant investments, but later updated its articles of association to prohibit "Americans" from buying.
However, the Sino-US wrestling has not subsided, and the difficulties faced by the Tranquil Fund cannot be solved by a single charter.
Whether it is to avoid political risks or stabilize investor confidence, changing managers is a must.
At the end of 2021, the Tractor Fund Supervision Committee issued an invitation to the Hong Kong ETF community to open the bidding for a new manager.
According to the Mainland's "Caixin Weekly" two weeks ago, in addition to Hang Seng Investments, State Street Global and CSOP were also invited to participate in the selection and entered the final competition.
As of this Tuesday, Trafigura Fund announced that Hang Seng Investments will replace State Street Global as the new manager, and the handover is expected to be completed in the third quarter of this year.
In November 2020, the then US President Trump issued a ban on investment in China, which affected many US-funded institutional investors, including State Street Global.
(Associated Press)
How to defend financial sovereignty
The 22 years that State Street Global has managed Tracker Fund are the 22 years of the "dream" of globalization and the 22 years of rapid growth in Hong Kong's financial industry.
Ren Zhigang once pointed out in his blog that after State Street was appointed, State Street moved its regional processing center in Sydney to Hong Kong in 2000, making Hong Kong the company's operating hub in Asia outside of Japan.
State Street Global is not an isolated example. In fact, backed by the rapid growth of emerging economies in Asia, Hong Kong has become an Asian business hub for many overseas asset management companies by virtue of its internationalized investment environment.
According to the Hong Kong Securities and Futures Commission, as of the end of 2020, the number of licensed corporations licensed to conduct asset management (Type 9 regulated activities) in Hong Kong was 1,878, with more than 50% of the HK$33 trillion in assets under management Sourced from overseas (non-China and Hong Kong) investors.
However, the "investment ban" provoked by Trump has shattered the dream of globalization.
The change of the "helmsman" of Transcript Fund, State Street Global can only "dismount", the changes in international politics, the impact on the international financial structure, seems to have just begun.
Hong Kong's financial industry and even the SAR government inevitably have to think about a new "examination question": under the wrestling between China and the United States, when globalization is retrograde, how should Hong Kong, which makes a living as a "super liaison", handle itself ?
At the same time, the role of Hong Kong's financial regulators is also facing new challenges.
In the turmoil of the above-mentioned ban, when the Secretary for Financial Services and the Treasury, Xu Zhengyu, was repeatedly asked by Legislative Council members about the follow-up, he only reiterated that he had urged the HKMA and the Tracking Committee to follow up seriously; The market was chaotic, but there were no warnings or penalties.
In the face of market turmoil, the authorities ultimately left it to the market to deal with it, but this inactive attitude is inevitably worrying: when Hong Kong investment product managers are influenced by foreign politics and fail to perform their duties, how can local regulators safeguard investment interests?
If the SAR government fails to actively defend our "financial sovereignty", how can we maintain financial stability?
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