Cross-border yuan

Shen­zhen-HK Stock Con­nect seen as plus to RMB flows

China Daily (USA) - - FRONT PAGE - By OSWALD CHAN in Hong Kong oswald@chi­nadai­lyhk.com

Fi­nan­cial an­a­lysts in Hong Kong reckon that the Shen­zhen-Hong Kong Stock Con­nect, which will likely be launched in De­cem­ber, will fa­cil­i­tate larger and more balanced cross-border ren­minbi fund flows.

The sec­ond eq­uity trade link be­tween the main­land and Hong Kong, an­nounced in mid-Au­gust by the China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion and Hong Kong’s Se­cu­ri­ties and Fu­tures Com­mis­sion, would abol­ish an ag­gre­gate quota. The ag­gre­gate quota for the Shang­haiHong Kong Stock Con­nect, launched in Novem­ber 2014, was also scrapped.

“Against this back­drop of strong two-way eq­uity mar­ket flows, the­abol­ish­mentof over­all quo­tas can be seen as an in­di­ca­tion that the main­land’s cap­i­tal ac­count lib­er­al­iza­tion is ma­tur­ing and pol­i­cy­mak­ers are be­com­ing more com­fort­able with the na­ture of cross­bor­der for­eign ex­change flows and the ren­minbi’s out­look,” said a re­search re­port on Linda Csel­lak, emerging mar­ket from HSBC.

Though there is not an ag­gre­gate quota, the daily trad­ing lim­its — 10.5 bil­lion yuan and 13 bil­lion yuan for the south­bound and north­bound chan­nels re­spec­tively — are still ap­plied on both the Shen­zhen and Shang­hai mar­ket trade links.

“Over time, we­be­lieve these two-way in­vest­ment schemes will en­hance the ren­minbi’s role as an in­vest­ment cur­rency, foster healthy two-way flex­i­bil­ity in the ex­change rate, cur­ren­cies and­helpon­shore­and­off­shore for­eign ex­change (ren­minbi) curves con­verge fur­ther,” the HSBC re­port added.

Linda Csel­lak, head of Asia Pa­cific equities at Man­ulife As­set Man­age­ment, is more pos­i­tive on the Shen­zhenHong Kong Stock Con­nect than the Shang­hai Hong Kong Stock Con­nect.

“There will be buy­ing op­por­tu­ni­ties in small and mid cap com­pa­nies, par­tic­u­larly in Hong Kong, with niche busi­nesses at at­trac­tive val­u­a­tions with scarcity value,” Csel­lak noted.

The Shen­zhen trade link will of­fer off­shore in­vestors ac­cess to 880 stocks listed in Shen­zhen, with the ma­jor bulk of ben­e­fi­cia­ries be­ing small and mid cap com­pany stocks and tech­nol­ogy shares. Main­land in­vestors can gain ac­cess to trade 417 stocks listed in Hong Kong un­der the sec­ond stock con­nect pro­gram.

Adian Yao, se­nior emerging Asia econ­o­mist at AXA In­vest­ment Man­agers, said the sec­ond eq­uity mar­ket trade link would foster more balanced ren­minbi cross­bor­der fund flows.

There will be buy­ing op­por­tu­ni­ties in small and mid cap com­pa­nies, par­tic­u­larly in Hong Kong.”

head of Asia Pa­cific equities at Man­ulife As­set Man­age­ment

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