HKEx looks beyond through train stock scheme

Exchange chief Charles Li says the through train scheme with Shanghai could expand to cover fixed-income and currency products

PUBLISHED : Thursday, 22 May, 2014, 11:40am
UPDATED : Friday, 23 May, 2014, 12:36am

The upcoming tie-up between the Hong Kong and Shanghai stock markets could expand to fixed-income and currency products, Hong Kong Exchanges and Clearing chief executive Charles Li Xiaojia said.

Li said the HKEx would introduce more yuan-denominated fixed-income and currency products in the next few years in preparation for a potential link-up with the mainland's bond and currency markets.

Mutual market access provides us with huge room for imagination

"Mutual market access provides us with huge room for imagination. HKEx needs to develop more products to prepare for that," he told a conference on the yuan currency yesterday.

Beijing last month approved a through train stock scheme that will link the HKEx with the Shanghai Stock Exchange. It will allow individual investors to trade in each other's market. The scheme will start in October.

Li said the next stage would be a tie-up between the HKEx and the commodities exchanges of Dalian, in Liaoning province; Zhengzhou, in Henan province; and Shanghai.

He said he hoped this would happen in three to five years.

The third stage of mutual market access would be in fixed-income and currency products.

"Many international investors are keen in trading mainland fixed-income products, but they have no access now," Li said. "They would be interested in trading on the onshore bond markets through Hong Kong if the Hong Kong-Shanghai tie-up could expand into fixed income and currencies."

Mainland investors would also be interested in trading through Hong Kong yuan interest rate futures and other products not available now, he said.

The HKEx introduced yuan futures last year, but they are not actively traded. Li, however, is optimistic about the prospect.

"After the Shanghai and Hong Kong stock markets are connected under the mutual market access scheme, investors in the mainland and Hong Kong would use yuan to trade stocks under the scheme," he said. "This will increase the demand for yuan currency futures to hedge currency risks and hence would boost turnover in the contracts," Li said.

Andrew Fung Hau-chung, an executive director and head of global banking and markets of Hang Seng Bank, said there would be demand for cross-border trading of fixed-income and currency products.

Fung said a potential tie-up of HKEx and Shanghai would help mainland investors diversify their investments.

"The through train stock scheme would be a good testing ground for [mainland] China to open up its markets and capital accounts in an orderly way," he said. "What is more important for Beijing is that such a tie-up would be under proper risk management.

"If the scheme is successful, Beijing would replicate the concept to other products, such as commodities and bonds, to gradually open its investment markets to international investors."