Stock connect scheme seen as dampener on dim sum bonds

Dim sum bonds and other yuan investment products face challenges in attracting yuan capital after global investors obtain direct access to the US$4 trillion mainland equity markets.

Foreign fund mangers are piling in cash and increasing their portfolio weights on the mainland to buy shares listed on the Shanghai Stock Exchange after regulators approved the 550 billion yuan (HK$696 billion) Hong Kong-Shanghai stock connect scheme.

The scheme will allow Hong Kong and international investors to trade up to 13 billion yuan a day, or 300 billion yuan in total, in Shanghai stocks, while mainland investors can trade up to 10.5 billion yuan a day, or 250 billion yuan in total, of Hong Kong shares.

Investors are hoping that improved financial and dividend payout ratios will help the undervalued mainland market deliver good returns.

The mainland market has been one of the world's worst-performing major markets since the global financial crisis, losing an average of 12 per cent a year from 2008 to last year.

By comparison, the average yield on dim sum bonds has been hovering between 3 per cent and 4.5 per cent since 2011, when the market was launched, according to an index compiled by HSBC.

However, the A-share markets have outperformed all other investment asset classes on the mainland this year, with the Shanghai Composite Index up 17 per cent as of yesterday. In a note released yesterday, Morgan Stanley said the launch of the stock connect scheme would help contribute to a year-end rally for A shares and the Hong Kong equity market.