(Yicai Global) July 5 -- The much-anticipated exchange-traded fund connectivity mechanism linking up exchanges in China's mainland and the Hong Kong Special Administrative Region is predicted to channel more offshore funds into Chinese equities.

Analysts expect that more foreign capital will flow into the Chinese market through the ETF Connect which began trading yesterday.

The program increases mutual access. Institutional and retail investors based in Hong Kong and abroad can invest in ETFs listed on the Shanghai and Shenzhen exchanges through the scheme. Vice versa, mainland traders can buy Hong Kong-listed ETFs.

The first day was busy. The initial batch of 83 mainland-listed ETFs recorded CNY23.1 billion (USD3.4 billion) in transactions on the first trading day, according to data from bourses in Shenzhen and Shanghai.

Investors from Hong Kong bought CNY147 million (USD22 million) of mainland-listed ETFs yesterday through the new connectivity mechanism , according to the Hong Kong Stock Exchange. For now, investors from the mainland can trade four HKEX-listed ETFs via the program.

The move marks the first step of opening up China's ETF market to international investors, Ma Zhiping, head of China equity sales at Goldman Sachs, said to Yicai Global. It is a milestone in the expansion of new trading instruments since the establishment of the stock connect program, she added.

The above-mentioned 83 A-share ETFs involve 20 fund companies that touch some core components of the SSE 50 ETF and the CSI 300 ETF. The group also targets hot sectors such as medicine, technology, and electric vehicles.

Investors can enter a massive market. China's mainland ETFs had a total scale of CNY1.4 trillion (USD210 billion) as of Dec. 31, 2021, according to public data. The compound annual growth rate is 30 percent over the past five years.

HKEX had more than 130 ETFs as of May 31. The average daily turnover exceeded HKD11 billion (USD1.4 billion) and the scale of assets surpassed HKD430 billion (USD54.8 billion).

ETFs have the advantages of diversification, openness, and transparency, as well as low transaction costs and high efficiency, said Sha Yan, general manager of SZSE.

Adding ETFs to the stock connect mechanism is conducive to enriching cross-border investment varieties, providing more investment convenience and opportunities for domestic and foreign investors, and promoting the sustainable, stable, and healthy development of the two markets, Sha added.

The new mechanism will facilitate cross-market investing and will enhance the internationalization of the Shanghai Stock Exchange, Cai Jianchun, general manager of the SSE, said during the opening ceremony. The program will further consolidate the status of Shanghai and Hong Kong as international financial centers, he added.

Editors: Emmi Laine, Xiao Yi