The Johannesburg Stock Exchange (JSE) has signed a letter of intent for an index product licence with Chinese fund manager GF Fund Management to create exchange traded funds (ETFs) based on the FTSE/JSE Top40 Index.

The letter of intent, which signifies closer ties between South Africa and China’s financial markets, was signed during the inaugural South Africa China Market Forum held at the JSE.

The FTSE/JSE Top40 Index, an index within the FTSE/JSE Africa Index Series, consists of the 40 largest companies on the JSE by market capitalisation.

"We are very pleased to initiate this letter of intent which will allow for the first direct launch of an exchange traded product in Asia. This will give Chinese investors exposure to South African companies while giving our companies exposure in a very important emerging market," says Ana Forssman, director of market data at the JSE.

While this will enable the creation of an ETF, Chinese investors can currently trade the FTSE/JSE Top 40 Derivative product in Hong Kong Dollars on the Hong Kong Future Exchange. This is due to collaboration between the BRICS exchanges through the BRICSMART alliance formed in 2011 which allows investors to trade BRICSMART products in local currencies.

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By GlobalData