Shang­hai, HK un­veil cross-bor­der trad­ing plan for stocks

China Daily (Canada) - - FRONT PAGE - By XIE YU in Shang­hai and AMY HE in New York

A pi­lot pro­gram al­low­ing cross-bor­der stock trad­ing be­tween the Hong Kong and Shang­hai stock mar­kets was an­nounced on Thurs­day in China’s lat­est move to open up its cap­i­tal mar­kets.

The pro­gram will be­gin in six months and en­able deal­ers to in­vest in des­ig­nated shares through lo­cal se­cu­ri­ties firms or bro­kers, the China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion said in a state­ment with the Se­cu­ri­ties and Fu­tures Com­mis­sion of Hong Kong.

“It is an im­por­tant step in the open­ing up of China’s cap­i­tal mar­ket and will en­hance cap­i­tal-mar­ket con­nec­tiv­ity be­tween the main­land and Hong Kong,” it said.

The pro­gram al­lows a max­i­mum cross-bor­der in­vest­ment of 550 bil­lion yuan ($90 bil­lion). In­vestors in Shang­hai and Hong Kong will be able to buy and sell up to 23.5 bil­lion yuan of stocks in cer­tain com­pa­nies each day on each other’s ex­changes.

Pre­mier Li Ke­qiang said at the Boao Fo­rum for Asia that the plan “will en­able us to ex­pand mar­ket ac­cess, fos­ter a bet­ter busi­ness en­vi­ron­ment to un­leash greater div­i­dends of re­form, spark so­cial cre­ativ­ity and sta­bi­lize mar­ket ex­pec­ta­tions”.

The Shen­zhen Stock Ex­change has not yet been in­cluded in the pro­gram.

Hong Kong and for­eign in­vestors will be al­lowed to buy as much as 13 bil­lion yuan ($2.1 bil­lion) a day in Shang­hai-listed stocks through the Hong Kong mar­ket.

Main­land in­vestors, who will be limited to in­sti­tu­tions and in­di­vid­u­als hold­ing at least 500,000 yuan ($80,000) in their stock and cash ac­counts, will be able to pur­chase up to 10.5 bil­lion yuan ($1.7 bil­lion) daily in Hong Kong-listed stocks through the Shang­hai bourse.

“This marks the be­gin­ning of China’s cap­i­tal mar­ket re­form and one step fur­ther in lib­er­al­iz­ing the cap­i­tal ac­count,” said Shen Ming­gao, head of China re­search at Citi Re­search, in an email note.

“This ini­tia­tive adds to pos­i­tive pol­icy news flows af­ter re­forms of the one-child pol­icy, New Ur­ban­iza­tion Plan, and widen­ing of the RMB daily trad­ing bands, and pro­motes mar­ket sen­ti­ment and re-rat­ing go­ing for­ward,” he said.

Shen also said that this will lead to more for­eign in­vestor par­tic­i­pat­ing in the health­care and con­sumer sec­tors.

Other an­a­lysts said the pro­gram will lift the Hong Kong stock mar­ket thanks to in­creased in­vest­ment be­cause many main­land in­vestors are in­ter­ested in buy­ing H-shares — main­land com­pa­nies listed in Hong Kong — but have been pre­vi­ously re­stricted from do­ing so.

“Trade vol­ume in the Hong Kong stock mar­ket will be largely boosted,” said Oliver Meng Rui, a pro­fes­sor at the China Europe In­ter­na­tional Busi­ness School in Shang­hai.

He said the quota is sig­nif­i­cant to Hong Kong be­cause it ac­counts for al­most a quar­ter of the cur­rent daily turnover.

Rui said many main­land in­vestors will try to di­ver­sify their port­fo­lio by pur­chas­ing Hong Kong-listed stocks through the pro­gram. As Hong Kong shares are de­nom­i­nated in the Hong Kong dol­lar, it helps in­vestors to re­duce risks of hold­ing only ren­minbi as­sets, he said.

Lu Wen­jie, an H-share strate­gist at UBS Se­cu­ri­ties, said the pi­lot pro­gram will also help buoy up main­land stocks.

Re­gard­less of the bad per­for­mance of the main­land’s A-share mar­ket over the past few years, there are still some “good-qual­ity” stocks at­trac­tive to off­shore in­vestors, he said.

“Some con­sump­tion and ma­chin­ery stocks are only avail­able in the A-share mar­ket, and I be­lieve their value will draw the at­ten­tion of for­eign in­vestors,” Lu said.

He added that the trial pro­gram will dis­cour­age spec­u­la­tion and help cre­ate a healthy in­vest­ment en­vi­ron­ment that cen­ters on value.

The bench­mark Shang­hai Com­pos­ite In­dex surged by 1.38 per­cent to 2134.3 at its close on Thurs­day, with bro­ker­ages leading the rally.

The gauge in­dex that traces bro­ker­age com­pa­nies soared by 6.7 per­cent. China CITIC Se­cu­ri­ties, the na­tion’s big­gest bro­ker­age in mar­ket value, grew 9.74 per­cent.

In Hong Kong, the Hang Seng In­dex jumped 1.5 per­cent, hit­ting its high­est close since Jan 2. CITIC Se­cu­ri­ties gained 9.2 per­cent and Haitong Se­cu­ri­ties rose by 7.5 per­cent.

“It is for sure good news for se­cu­ri­ties com­pa­nies, as com­mis­sion in­come is to ex­pand largely with the new rule fa­cil­i­tat­ing cross-bor­der stock trad­ing,” Rui said.

Li Fei, an in­de­pen­dent fi­nan­cial com­men­ta­tor, said the pi­lot scheme will cre­ate new in­vest­ment chan­nels for the ren­minbi, help­ing in­ter­na­tion­al­ize the cur­rency.

It will also con­sol­i­date Hong Kong’s po­si­tion as an off­shore ren­minbi cen­ter, he said.

Jiang Shu, a for­eign ex­change an­a­lyst at In­dus­trial Bank in Shang­hai, echoed the view.

“This is a step in China’s grad­ual lib­er­al­iza­tion of its cap­i­tal ac­count,” he told AFP.

“The au­thor­i­ties will def­i­nitely pay close at­ten­tion to the cap­i­tal flows be­tween Shang­hai and Hong Kong and in­tro­duce sup­port­ive reg­u­la­tory mea­sures.”

Cur­rently, over­seas in­vestors can in­vest in Shang­hai and Shen­zhen only through a qual­i­fied for­eign in­sti­tu­tional in­vestors pro­gram, or QFII, that grants quo­tas for A-share in­vest­ment.

QFII quo­tas had reached $53.4 bil­lion, and the RQFII quota — which al­lows for­eign in­sti­tu­tional in­vestors to use the ren­minbi to in­vest in the main­land rather than the US dol­lar — had reached 200.5 bil­lion yuan by the end of March, ac­cord­ing to the State Ad­min­is­tra­tion of For­eign Ex­change.

Agencies con­trib­uted to this story. Con­tact the writ­ers at xieyu@chi­ and amyhe@chi­nadai­

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