New | China mutual funds join ride on through train

Beijing gave the green light on Friday to China's five trillion yuan mutual fund industry to enter the Hong Kong stock market via the through train scheme, opening the door to potentially massive inflows into the city as money managers from the north hunt for bargains.

The announcement from the China Securities Regulatory Commission reflects policymakers' determination to efficiently direct cross-border capital flows into the stock market while paving the way for an expanded stock connect scheme linking the Hong Kong and Shenzhen exchanges.

CSRC spokesman Deng Ge said on Friday that the new rule would take effect immediately.

The liberalisation appears to be an apparent response to lukewarm interest among individual investors in Hong Kong shares since the launch of the market tie-up with Shanghai in November.

The Hang Seng China AH Premium Index closed at 135.44 on Friday, which means the A shares were trading at an average 35.44 per cent premium to their H-share counterparts.

"The price gap is big enough to attract mainland institutional investors to buy Hong Kong shares," said Howhow Zhang, the head of research at Z-Ben Advisers. "It is a clear message that the regulator is encouraging capital outflows to cool A shares."