Countdown begins to QDII2 scheme

Work under way to let mainland individual investors put funds directly into HK stocks

PUBLISHED : Friday, 25 January, 2013, 12:00am
UPDATED : Friday, 25 January, 2013, 4:56am

Beijing will soon issue a new rule governing individual mainland investors' direct investments in Hong Kong stocks, according to two people with knowledge of the plan.

They said financial regulators were giving priority to the implementation of the qualified domestic individual investors (QDII2) scheme, which could spark a multibillion-yuan outflow into the city's market.

The QDII2 programme, similar to an earlier proposal for a "through train" system that never came to pass, would allow mainland investors to open brokers' accounts in Hong Kong to trade on its stock exchange.

The sources said the QDII2 plan would materialise as early as March, after the National People's Congress.

"Technically, there are no barriers to its launch," one person briefed by senior officials said.

"It's certain there'll be no about-face this time."

In August 2007, the country's foreign exchange regulator said it would let individual mainland investors buy Hong Kong stocks directly, but the plan was scrapped in July 2010, as officials feared that the resulting capital outflow would hurt domestically-listed A shares.

The People's Bank of China said on January 11 that work on a trial run of QDII2 was under way, the first time Beijing officially said it would put the "through train" back on its agenda.

The QDII2 scheme is believed to be linked to the B-H share conversions proposed by the mainland securities regulator.

Beijing is encouraging companies with B shares - traded in US dollars in Shanghai and Hong Kong dollars in Shenzhen - to relist in Hong Kong amid a lack of liquidity and buying interest in the B-share market.

A QDII2 scheme could let former holders of B shares trade stocks in Hong Kong after the firms are relisted in the city.

Mainland regulators have yet to unveil a total quota for QDII2 investments.

Analysts expect capital outflows in the QDII2 programme to have minimal impact on A shares, which trade in yuan.

"A multibillion-yuan fund outflow wouldn't be enough to affect the mainland market," Z-Ben Advisors chief researcher Howhow Zhang said.

"Mainland investors are more worried about a flood of A-share initial public offerings that could siphon hundreds of billions of yuan from the market while diluting the prices of the existing stocks."