China Economy

New rule to boost A shares, cross-border flows

Mainland-based residents of Hong Kong, Macau, Taiwan will soon be able to invest in mainland-listed stocks, increasing cross-border flows

PUBLISHED : Wednesday, 27 February, 2013, 12:00am
UPDATED : Wednesday, 27 February, 2013, 1:27am

Beijing will soon give residents of Hong Kong, Macau and Taiwan access to the mainland's A shares, injecting new vigour into the lacklustre stock market.

The China Securities Regulatory Commission is expected to unveil in the near future a new rule governing the opening of A-share trading accounts, which will, for the first time, define residents from the three areas as qualified A-share investors if they live on the mainland.

A CSRC press officer told the South China Morning Post yesterday the regulator had officially endorsed the policy change and the rule would take effect shortly.

The regulator would not disclose a clear date for the liberalisation, but an official announcement is expected within weeks.

The change would allow nearly 500,000 mainland-based people from the three areas to buy A shares, although analysts said it would be difficult to predict how much fresh capital they would bring to the market.

A person with knowledge of the policy said the new investors would initially be allowed to use their own currencies to invest in the yuan-denominated equities.

The CSRC has been striving to bolster the mainland equity market since chairman Guo Shuqing took office in late 2011. But his efforts have yet to pay off because of weak buying interest.

In the short term, it helps boost confidence in A shares, while taking a long view, it's a necessary step towards free cross-border capital flows

The Shanghai stock market was among the world's worst-performers in the past three years.

It is believed that the approval given to Hong Kong, Macau and Taiwan residents is aimed at increasing liquidity, although the CSRC would say it is part of its market reforms.

Based on yesterday's closing prices, the mainland's A shares traded at a nearly 3 per cent premium to their H-share counterparts, making the A shares less attractive than the H shares of dual-listed companies.

"It's targeted at killing two birds with one stone," said Z-Ben Advisors chief researcher Howhow Zhang. "In the short term, it helps boost confidence in A shares, while taking a long view, it's a necessary step towards free cross-border capital flows."

Last year, Beijing massively expanded the renminbi qualified foreign institutional investor (RQFII) scheme, which allows foreign institutions to invest offshore yuan in the mainland's capital markets.

Beijing would soon scrap the 20 per cent stock investment cap on RQFII funds, sources said. At present, bond purchases must make up at least 80 per cent of the assets in RQFII funds.

State-owned media are now beating the drum for a greater inflow of overseas capital into mainland stocks. Beijing has allotted an RQFII quota of 270 billion yuan (HK$336 billion) for Hong Kong institutions, but only 70 billion yuan of quota has so far been granted.

Mainland regulators are also considering allowing mainland individual investors to buy H shares. At present, mainland residents can allocate part of their assets to overseas stocks through the qualified domestic institutional investor programme, with the funds managed by domestic institutions.