Landmark Hong Kong-Shanghai stock link officially opens

Dennis CHONG
1 / 3

Local officials take part in the launch of the Shanghai-Hong Kong Stock Connect, in Hong Kong, on November 17, 2014, as a live broadcast shows a ceremony taking place in Shanghai

Local officials take part in the launch of the Shanghai-Hong Kong Stock Connect, in Hong Kong, on November 17, 2014, as a live broadcast shows a ceremony taking place in Shanghai (AFP Photo/Philippe Lopez)

A landmark trading link that is expected to see billions of dollars in cross-border transactions between Hong Kong and Shanghai's stock exchanges officially launched on Monday, but figures show mainlanders are holding back from piling into Hong Kong.

The Shanghai-Hong Kong Stock Connect is expected to allow the equivalent of US$3.8 billion a day in cross-border transactions and open up the mainland's closeted equities markets to the world.

At the opening ceremony Charles Li, chief executive of Hong Kong's stock exchange, declared the tie-up a "historic" moment and hailed a "new era" of trade, while chairman Chow Chung Kong said it was a "breakthrough in the opening up of China's financial market".

The link enables international investors to trade selected stocks on Shanghai's tightly restricted exchange and let mainland investors buy shares in Hong Kong.

Hong Kong investors had exhausted their daily allowance of Shanghai shares by 2pm (0600 GMT) Monday, but mainlanders were less keen -- using up less than 20 percent of their quota by the close of trade.

Jackson Wong, associate director at Simsen International Financial Group, told AFP: "Northbound (trading) is many times higher than south bound. That means Chinese investors are not blindly buying HK stocks. It's not a bad sign."

Hong Kong stocks closed Monday down 1.21 percent, or 290.30 points at 23,797.08. In Shanghai, the benchmark composite index also lost morning's gains and closed 0.19 percent lower at 2,474.01.

- 'Historic opportunities' -

Wong added: "Investors had a lot of hype on this programme. It's a typical situation where investors are taking profits from the huge run up. They are taking a breather to see how this will go."

At the opening ceremony in Shanghai, Xiao Gang, head of the China Securities Regulatory Commission, said the new platform was "conducive to the internationalisation of the renminbi".

He added: "Shanghai-Hong Kong Stock Connect is a major initiative to promote mutual opening up of the capital markets in the two cities. It's a major institutional innovation of the capital markets.

"China's capital markets now face historic opportunities."

The creation of the trading platform is seen as a key step towards greater liberalisation in the world's second largest economy.

But it is subject to strict limits in order to preserve capital controls in China, where Communist authorities keep a tight grip on the yuan currency.

If an investor buys stocks in the other market, when they sell the money can only go back to their home market account, a so-called "closed path" to prevent "hot money" leaking out.

- 'Wait and see attitude' -

Beijing has granted an initial cumulative quota of 250 billion yuan ($41 billion) for trading of Hong Kong stocks, while 300 billion yuan is allowed for Shanghai equities, with daily allowances of 10.5 and 13 billion yuan respectively.

The Hong Kong Monetary Authority, the city's de facto central bank, last week lifted a daily cap for converting the local dollar to yuan to facilitate the trading link.

Analysts say that will bring easier access to renminbi for local residents and encourage the use of the currency.

But while the link gives Hong Kong a route into the world's second biggest economy, figures suggest the interest is currently only one-way.

At a retail brokerage outlet of Guotai Junan Securities in a Shanghai suburb, a terminal dedicated to the Connect sat unused alongside other computers for trading domestic A shares.

Retail investors, mainly retired people, said they did not meet the $82,000 minimum capital requirement to trade Hong Kong stocks.

"I don't have enough money to invest," said one woman in her 60s.

And Wang Chenyu, a Shenzhen-based investor who already trades Hong Kong stocks, said: "Shanghai-Hong Kong Stock Connect offers a limited scope of shares for trading and it has investment quotas, so I did not pay special attention to it. It does not have any special advantages."

However, others were waiting to see how the scheme progresses.

"I will still invest a larger proportion of my money in A shares since it offers more variety," said Shen Zhe, who works at a financial company.

"However, I will still try the Stock Connect, maybe early next year, because I want to wait and see how the market goes."

Castor Pang, the head of research at Core Pacific-Yamaichi, told AFP:"They (Mainland investors) will have to get used to the trading system. Right now it's the wait and see attitude. But it's a short term phenomenon. They will still be willing to invest in Hong Kong."

He added the larger funding flow into Shanghai could be due to activities of international institutional investors in Hong Kong.