White Collar | Mainland Chinese financial firms will be through train’s biggest winners
Banks and brokers across the border set to reap the most benefits in stock through train scheme
The soon-to-be-launched stock through train scheme would be historic as it will be the first time overseas retail investors can trade in A shares. As such, the biggest winners would be financial firms on the mainland and not in Hong Kong.
The scheme will connect the stock markets of Hong Kong and Shanghai to allow investors to conduct cross-border trading of stocks listed in the two markets.
As the scheme is approaching the starting line, it is time to study who would be the biggest gainer in this game. The winners are likely to be mainland banks and brokers for two reasons.
First, the scheme has two paths. The northern route allows Hong Kong and international investors to invest through Hong Kong-based brokers, who collect orders from investors trading Shanghai-listed A shares. The southern track allows mainland brokers to trade in Hong Kong-listed shares for mainland investors.
On the surface, it looks like an equal opportunity for both Hong Kong and mainland brokers. However, one has to understand that there are only few large Hong Kong banks and brokers that are allowed to set up joint-venture securities firms on the mainland and all have mainland partners.
In contrast, there are many mainland banks and brokers that have developed operations here. They would benefit from the scheme as their mainland and Hong Kong operations can serve both directions of investors trading under the scheme.