Shenzhen stock link to focus on small-cap stocks and exchange-traded funds
Funds targeting retail investors would help complement institutional focus of Hong Kong's existing through-train scheme with Shanghai
Small-cap stocks and exchange-traded funds (ETFs) targeting retail investors will be the main features in the Shenzhen-Hong Kong stock connect scheme being launched this year, said Hong Kong's Secretary for Financial Services and the Treasury Chan Ka-keung.
This would complement the institutional focus of the city's stock link with Shanghai.
"We are going to add smaller sized stocks listed in Hong Kong as well as ETFs to the cross-border trading scheme under the Shenzhen-Hong Kong stock connect scheme. This will help attract more investors to trade using the weak southbound through train," Chan said.
Shenzhen Stock Exchange officials in Hong Kong for a forum with potential investors declined to comment on the importance of luring more retail players to use the stocks through-train scheme, citing the sensitivity of the issue.
The cross-border scheme that ties up the Hong Kong and Shanghai stock markets allows international investors to trade up to 300 billion yuan (HK$377 billion) in Shanghai listed A shares, or 13 billion yuan a day. Mainland investors can spend a total of 250 billion yuan, or up to 10.5 billion yuan a day, in the Hong Kong market.
Market volume has been underwhelming so far. Only a third of the northbound quota for the Shanghai market has been used while the southbound flow was even weaker with only 10 per cent of the quota used.
There would be a separate quota for the Shenzhen-Hong Kong stocks through-train scheme, Chan added, while the existing total quota for the Shanghai-Hong Kong Stock Connect scheme would be expanded.
Chan said that using the quota as a gauge of the stocks through-train scheme's appeal was not justified.
"The quota is not a sales target. We do not need to reach the quota. Rather, we need to have an appropriate quota to allow investors to feel comfortable trading through the scheme," Chan said.
He believes the addition of small cap companies and ETFs will encourage more mainlanders to use the stocks through-train scheme. In addition, he said the scheme would also develop index futures products later this year to allow investors to hedge their positions.
Small-cap companies are normally more speculative in nature and the volume in those firms can easily soar.
Chan rejected some calls to abolish a requirement that mainland investors have over 500,000 yuan in their securities account to trade Hong Kong stocks. "We do not think the 500,000 yuan requirement is the reason mainlanders are not using the scheme. We believe education and promotion are needed to encourage use," he said.
Separately, America's Nasdaq stock exchange plans to expand in Asia by offering market technology and investor services to Hong Kong Exchanges and Clearing and other bourses and public companies in the region in light of the stocks through-train scheme.
"The stock market connect between Hong Kong and Shanghai has made Hong Kong a more appealing market for companies to list and investors to trade," Nasdaq president Adena Friedman said in Hong Kong yesterday.
"It also offers more business opportunities for Nasdaq as we provide part of the technology for the connection and market surveillance of the cross-border trading scheme for capital market players involved."
Friedman said Nasdaq could explore a cross-border trading link with Asian bourses, similar to the Hong Kong-Shanghai stocks through-train scheme, in the "very long term".
"We could explore the opportunities of linking up the trading systems of different markets in different time zones for 24-hour cross-border trading," she said. "But we would need to cope with the liquidity and regulatory issues involved."
