All aboard Shanghai

The 'through train' scheme allows Hong Kong and mainland investors to cross-trade stocks in Shanghai, and boosts that market's profile

PUBLISHED : Thursday, 10 April, 2014, 11:40pm
UPDATED : Friday, 11 April, 2014, 4:12am

The Shanghai Stock Exchange has been given a leg-up over the rival bourse in Shenzhen with the announcement that Hong Kong and mainland investors will be allowed to cross-trade stocks through Shanghai’s market.

The move, called a “trading through train” scheme, is expected to boost the Shanghai exchange’s international profile. It piggybacks on the city’s freetrade zone and sends a clear message from Beijing: The Shanghai locomotive has arrived.

Chow Chung-kong, Hong Kong Exchanges and Clearing chairman, said yesterday that the city’s exchange had not discussed a collaboration with the Shenzhen Stock Exchange, although he would not rule out the possibility of one day connecting those two markets.

A Shanghai Stock Exchange official said a task force recently studied the feasibility of creating a cross-trading system.

“It’s no easy job for the top regulators to balance the interests between the two mainland exchanges,” he said. “But it wouldn’t be wrong to say that Shanghai wins this time.”

The rivalry between the Shanghai and Shenzhen stock exchanges flared about five years ago when the Shanghai bourse, the bigger of the two share-trading platforms on the mainland, found itself eclipsed by its southern competitor in attracting new listings.

Shenzhen’s SME board and its Nasdaq-style ChiNext market enticed more small firms to launch their initial public offerings in the southern city.

The Shanghai market’s lesser rolein fundraising embarrassed a city that dreamed of becoming an international financial centre – and creating a mini-Hong Kong in the free-trade zone established last year. Promises increasingly sounded empty.

Analysts said a venture between Shanghai and Hong Kong could bode well for further economic changes in Shanghai’s free-trade zone.

The Shanghai bourse has said it plans to set up a financial trading platform inside the zone. Officials did not say whether the subsidiary would evolve into the long-heralded international board, where foreign companies could issue yuan-denominated A-shares for trading.

Officials announced in February that Qianhai, a pilot zone in Shenzhen designated for financial reforms, would enact several of those reforms this year, the biggest being the launch of the long-awaited qualified domestic institutional investor scheme, which would let local residents buy Hong Kong-listed shares.

Li Qiang, Qianhai’s deputy director general, suggested that the zone would not compete with Shanghai or Hong Kong directly, but would instead look for other partnerships.

He also proposed that Qianhai focus its energy on developing a futures market, where investors both onshore and offshore could cross-trade bonds and commodities.

Qiang declined to comment yesterday when asked about the existing agreement between the Hong Kong and Shanghai stock exchanges.

Louis Tse Ming-kwong, director of VC Brokerage, said Beijing might want to let the Shanghai exchange take the initial step, before expanding the cross-trading scheme to Shenzhen.

“China also wants to promote Shenzhen’s Qianhai as a yuan trading centre,” Tse said. “A tieup between HKEx and Shenzhen would benefit the development of Qianhai in the long run.”