Who are the winners in mainland-Hong Kong stock connect trading?
Over US$1 trillion in shares has changed hands via the two links in the three years since the Shanghai-Hong Kong stock connect was launched
Investors have traded more than a trillion US dollars’ worth of shares via the two cross-border stock-connect schemes linking Hong Kong to the mainland.
According to data from Hong Kong Exchanges and Clearing (HKEX), HSBC and liquor maker Kweichow Moutai have been the most heavily traded stocks, while banking, consumer and “new economy” have been the dominant sectors.
The stock connect between Shanghai and Hong Kong celebrates its third anniversary on Friday. As of the end of last month, it had seen international investors trade 3.35 trillion yuan (US$509 billion) of shares listed in Shanghai. Overseas investors traded 705 billion yuan of Shenzhen-listed stocks via the tie-up with Hong Kong, established in December last year.
That’s higher than the HK$3.32 trillion (US$425 billion) of Hong Kong-listed shares traded by mainlanders through the two channels.
The HKEX data shows that a combined total of US$1.025 trillion of shares have changed hands through the stock-connect links since they were launched.
The two cross-border schemes were major milestones in China’s efforts to open up its markets. They allow international investors to trade A shares listed in Shanghai or Shenzhen via any brokers licensed by HKEX, while providing mainlanders with a means to trade Hong Kong-listed stocks.
The trading data for the stock connect schemes highlights the differing tastes of international and mainland investors when it comes to selecting stocks.
The top three picks among mainlanders are banking shares. HSBC ranks top, with mainlanders holding HK$64.396 billion (US$8.25 billion) worth of stock at the end of October bought via the connect scheme. China Construction Bank comes next on HK$56.47 billion, and Industrial and Commercial Bank of China is third on HK$43.48 billion.
Other popular choices include internet giant Tencent, property developer Sunac China and car maker Geely Automobile, all of which made it into the top 10.
International investors, in contrast, appear to be more diversified in their selection. Their top pick is liquor maker Kweichow Moutai, of which they hold 46.49 billion yuan of stock, second is Ping An Insurance at 26.12 billion yuan and then comes Jiangsu Hengrui Medicine on 23.08 billion yuan.
The other popular Shanghai-listed shares include China Yangtze Power, Inner Mongolia Yili Industrial and Shanghai International Airport.
“Mainlanders like to buy blue chips and big bank as they feel more confident about corporate governance of these big companies. They do not feel comfortable trading the smaller stocks for fear of stepping into the trap of the con stocks,” said Louis Tse Ming-kwong, VC Asset Management’s managing director.
Con shares are penny stocks that split repeatedly to raise more funds from investors, even though the company does not have a profitable business. Securities and Futures Commission chairman Carlson Tong Ka-shing vowed to eradicate them within a few years and has stepped up enforcement recently.
“If the regulator wants to see mainlanders trade the smaller companies, they need to step up their efforts to crack down on con stocks,” Tse said.
“International investors would avoid banking stocks in the mainland as they fear the debt problem. Rather, they are more interested in trading consumer and new economy stocks which are enjoying fast growth in the mainland. This trend is likely to continue.”
In Shenzhen, the most widely held stocks by international investors are Hangzhou Hikvision Digital at 35.38 billion yuan by the end of October. Next was Midea Group at 31.02 billion yuan, then Gree Electric Appliances in third place at 20.73 billion yuan.
The average daily turnover of international investors trading in the Shanghai market this year stood at 2.469 billion yuan, representing 1.14 per cent of the total, up from 1.6 billion yuan last year, but below the 3.18 billion yuan that changed hands in 2015 and 2.79 billion yuan in 2014.
Overseas investors traded 1.74 billion yuan per day in Shenzhen stocks, 0.66 per cent of total turnover, up from 770 million yuan last year.
Mainlanders has traded a total of HK$3.32 trillion worth of Hong Kong stocks since the launch of the two channels joining Shanghai and Shenzhen with Hong Kong.
On average, mainlanders in the first 10 months of this year traded HK$4.46 billion of Hong Kong shares each trading day, representing 6.56 per cent of total market turnover. That is more than double last year’s HK$2.07 billion and the HK$1.7 billion in 2015.