Traders given green light to short Shanghai shares to boost Stock Connect scheme

The new lunar year will see more measures to boost the lacklustre Shanghai-Hong Kong Stock Connect scheme, beginning with the provision of short-selling.

The Hong Kong Exchanges and Clearing (HKEx) has told brokers in a circular that from next Monday, it will allow investors to short-sell Shanghai-listed A shares under the scheme.

Short-selling, which allows investors sell stocks they don't own and then buy them to square the account, is used for hedging and to profit in bearish markets.

This would mark the first reform of the cross-border trading scheme since it kicked off on November 17. The turnover of A shares through the Hong Kong stock exchange stood at 2.67 billion yuan (HK$3.36 billion) as of February 17, the last trading day before the Lunar New Year break, representing just 1 per cent of the Shanghai market's turnover.

Ben Kwong Man-bun, a director of KGI Asia, said the new measure would help boost turnover as short selling would enable investors to continue trading even during market downturns.

"However, we should not expect the turnover to go up immediately as there still continues to be many restrictions," he said.