Landmark Shanghai-Hong Kong stock link officially opens

One-way traffic at HK, Shanghai stock link
By Li Xueying, Hong Kong Correspondent And Rachel Chang, In Beijing, The Straits Times, 18 Nov 2014

WITH the simultaneous strikes of two gongs 1,200km apart, Hong Kong and Shanghai began a landmark scheme that allows international investors to buy and sell shares listed on a mainland bourse for the first time - a milestone in the opening up of China's tightly controlled capital market.

Mainland investors can now also trade shares in Hong Kong.



While still subject to caps, the linkage of both bourses creates the world's third-largest exchange combined. Hong Kong is now the world's sixth largest and Shanghai is seventh. Singapore is not within the top 20 ranked.

Within three hours of trading yesterday, the daily quota of 13 billion yuan (S$2.8 billion) for northbound trade through Hong Kong brokers was filled, reflecting pent-up hunger among international investors for undervalued mainland Chinese shares.

In contrast, when the Hong Kong bourse closed at 4pm, just 16.8 per cent of the daily quota of 10.5 billion yuan in southbound trade had been taken up by mainland investors.

The disparity reflects overseas demand for stakes in companies fuelled by "stable and good consumption" in the previously closed mainland market, said analyst Lu Wenjie from UBS China. Especially popular were those in industries such as railway, automobiles and liquor, he added.

Mr Ben Kwong, director of Hong Kong-based brokerage KGI Asia, was among those who snared Shanghai-listed shares for clients. "It went smoothly today but we have to see how it goes tomorrow when there will also be selling from Shanghai."

The Shanghai exchange does not allow investors to sell and buy a given stock on the same day.

On the lukewarm reception from mainland investors, analyst Wang Qiang of Zhongtou Securities said the gap is "surprising".

He surmises that one reason is that most mainland investors would have found a way of investing in Hong Kong already.

But he believes southbound trade could pick up later on, saying: "It's only the first day."

The scheme was hailed as a breakthrough in China's financial markets. Prior to this, the authorities kept a tight grip on overseas access, as well as on circulation of the yuan currency.

But in the characteristic step- by-step manner of Chinese reforms, Beijing granted an initial cumulative quota of 300 billion yuan for the trading of Shanghai stocks and 250 billion yuan for Hong Kong's. Without a cap, said Fudan University finance professor Chen Xuebin, the market would have been "chaotic".

Industry expectations are that the quota could be relaxed within months. There is also talk that the scheme could eventually be expanded to include the Shenzhen Stock Exchange. As for whether overseas markets such as Singapore could be included, analysts said the likelihood is low.

Zhejiang University finance expert Li Jiming said the Hong Kong-Shanghai link is an intermediate step to prepare Shanghai to become an international bourse.

"So the next step is to liberalise it to all. Having a Singapore-Shanghai exchange is not a necessary step in this process."

Investors shun Shanghai-HK link
Weak take-up in both markets on second day of trading follows disappointing launch
The Straits Times, 19 Nov 2014

HONG KONG - Investors largely turned away from the link-up between the Hong Kong and Shanghai stock exchanges yesterday, a day after it was launched to much fanfare and ambitions for billions of dollars in daily cross-border transactions.

Officials have trumpeted the Shanghai-Hong Kong Stock Connect as opening up China's closeted stock markets to the outside world and giving mainlanders a chance to enter the lucrative Hong Kong exchange.

But the second day of trading proved a damp squib, with China-based investors buying 7.6 per cent of their daily allowance of Hong Kong shares, while Hong Kong dealers picked up less than a third of their Shanghai quota.

This comes after a disappointing launch day. While Hong Kong investors had exhausted their daily allowance of Shanghai shares two hours before the end of trade that day, mainlanders used up less than 20 per cent of their quota by the close. In particular, Chinese investors failed to show up for some of Hong Kong's foremost companies, confounding the predictions of analysts.

Shares of Tencent, HSBC and Galaxy Entertainment Group, identified by analysts as likely targets for mainland investors, declined on Monday.

The weak uptake was reflected in the two stock markets, which were hit by another batch of downcast housing data out of China that indicated continued weakness in the world's No. 2 economy. Hong Kong ended 1.13 per cent lower, while Shanghai lost 0.71 per cent.

One reason for the tepid response from Chinese investors is that share prices for industry leaders previously out of reach on the mainland had already run up in anticipation of the link, according to UBS.

Tencent, operator of the WeChat messenger service, and Galaxy Entertainment Group, which runs Macau casinos, both jumped more than 7 per cent last week after the start date was announced.

"Investors from China are clearly trying to pick value," said UBS head of China equities Yang Xia. "They are not just buying shares that are not available domestically."

Shares in Hong Kong Exchanges and Clearing fell 2.36 per cent yesterday after losing 4.45 per cent on Monday.

The creation of the trading platform is seen as a key step towards greater liberalisation in China's economy. But it is subject to strict limits in order to preserve capital controls in China, where the communist authorities keep a tight grip on the yuan.

While Hong Kong dealers are keen to buy up firms in China, many mainland traders - who are usually elderly, private investors - are reluctant to go the other way and enter a market they are unfamiliar with.

AGENCE FRANCE-PRESSE, BLOOMBERG