Investors told not to count on quota top-up

Financial services minister describes caps on trading under the 'through train' share scheme as an 'important risk-management mechanism'

PUBLISHED : Monday, 14 April, 2014, 5:07am
UPDATED : Monday, 14 April, 2014, 7:28am

Hong Kong's financial services minister has warned market players not to expect the quota under the proposed cross-border stock trading scheme to be increased after it is filled, despite complaints that the cap is too low.

Brokers believe the government is trying to cool the market after speculators rushed to bet on certain stocks on Friday, a day after Beijing announced a 550 billion yuan (HK$691 billion) "through train" scheme for individual investors to cross-trade Hong Kong and Shanghai stocks from October.

"The market should not expect the quota under the scheme would definitely be increased," Chan Ka-keung, the secretary for financial services and the treasury told a Hong Kong television programme yesterday. "The quota is an important risk-management mechanism for the scheme. The authorities would take a conservative and cautious approach to gradually develop the scheme and would only agree to expand the quota if the risks would be under control."

[Authorities] would only ... expand the quota if the risks would be under control
Chan Ka-keung, Government minister

Fear of a lack of control saw Beijing drop the through train plan in November 2007, four months after it announced the scheme that would allow mainlanders to trade Hong Kong stocks without a quota.

The new plan caps the mainland trade at 10.5 billion yuan per day and up to 250 billion yuan for the total scheme across 266 of Hong Kong's biggest stocks. This represents half the amount under the qualified domestic institutional investor scheme, introduced in 2006 to provide a quota to fund houses and banks for fund products sold to mainlanders.

The scheme will also cap Hong Kong investors' trades at 13 billion yuan a day and 300 billion yuan for 560 A-share stocks. This is similar to the US$53.6 billion (330 billion yuan) quota under the qualified foreign institutional investor scheme launched in 2002, granting quotas to 241 insurers, pension funds and big banks to invest on the mainland.

"Beijing would like to have a quota in place to keep control. But the current cap is too small as it would be used up in 23 days if the daily quota is reached," said Joseph Tong Tang, executive director of Sun Hung Kai Financial.

"If the quota would not be increased immediately, the scheme may be suspended in less than a month. This would be hard for brokers and fund houses to provide products and services for investors. Beijing at least should have given a clear guideline on when and how the quota would be expanded."

Hong Kong Exchanges and Clearing's shares rose the most in five years on Friday, up 11.54 per cent to close at HK$146. It was also the most traded stock for the day at HK$6.87 billion.

Dual Hong Kong and Shanghai-listed shares with wide price gaps have seen swings as investors believe the scheme would narrow the gap. Anhui Conch, whose H shares traded at the highest premium of 38.91 per cent to its A shares, saw its H shares drop 7.23 per cent to close at HK$30.15 on Friday, with turnover at HK$1.79 billion.

Luoyang Glass, whose H shares traded at a 71.9 per cent discount to its A shares, was the top gainer on Friday. Its H shares rose 15.79 per cent to close at HK$2.20, with turnover at HK$168 million.