The Hong Kong launch involves two funds based on the Morgan Stanley Capital International (MSCI) stock indices for South Korea and Taiwan - and comes two days before Singapore launches nine similar funds managed by the same financial institution.

Hong Kong Exchanges and Clearing deputy chief operating officer Lawrence Fok Kwong-man described the timing as a "coincidence".

However, one HKEx director confirmed the exchange had taken Singapore's plans into account when deciding on the launch.

"If HKEx does not launch the index funds when Singapore does, it would endanger Hong Kong's role as a leading financial centre in Asia," the director said.

Brokers expect little retail interest in the funds - which, like the SAR's Tracker Fund, are designed to passively replicate their respective indices.

However, the HKEx director said the exchange had proceeded with the launch for fear of being left behind by Singapore.

"Otherwise, institutional investors who are interested in the index funds will go to Singapore instead of Hong Kong," he said.

The iShares MSCI South Korea index fund and iShares MSCI Taiwan index fund are issued and managed by investment bank Barclays Global Investors and listed on the American Stock Exchange (Amex).

The nine Singapore funds, also managed by Barclays and listed on Amex, are based on stock market indices in the city state, Europe and the United States.

Although the funds are based on different markets, brokers said they believed the launches marked another round in the campaign for dominance between Hong Kong and Singapore.

In the past, timing has proved critical when they have introduced similar financial products.

For example, the Hong Kong Futures Exchange (now a subsidiary of HKEx) launched Taiwan sub-index futures contracts in May 1998, more than a year after the Singapore International Monetary Exchange (Simex) in January 1997.

The delay proved fatal, as the Hong Kong product recorded almost no turnover and was scrapped in September 1999. By contrast, Taiwan index futures have an average daily turnover of 7,000 contracts in Singapore.

The competition between the two cities has occasionally strained relations. Simex raised hackles in late 1998 with plans to launch a rival Hong Kong stock index product based on the MSCI Hong Kong index.

The Hong Kong exchange responded by barring information vendors from providing stock price data to the Singapore exchange, while the futures exchange cut margin requirements and extended trading hours to avoid losing turnover.

In the event, trading in the Singapore contract was almost zero.

"Investors had got used to trading Hang Seng Index futures in Hong Kong - why switch to Singapore?" a broker said.

Brokers said the SAR and Singapore should have learned from past confrontations: that launching first is the key to success.

"If there are some products which are already traded in Singapore, I think HKEx should not launch the same products in the SAR as it would be hard to convince investors to switch," one broker said. Barclays Global Investors regional director Joseph Ho said Singapore and Hong Kong were unlikely to offer the same index funds in future.

"It would be better if an index fund is traded in one market in the same time zone," he said.

The iShares funds will be the first on the Hong Kong exchange to trade throughout the day.

Mr Ho said the funds were popular on Amex, so "it is not a surprise to see . . . Hong Kong and Singapore launching similar products at the same time".