Stock through train curbs dent hopes for boost to HKEx turnover
Quotas that give Beijing better control of cross-border trading will trim gains from scheme, say brokers, who are also hit by popularity of ETFs
Quota restrictions on the proposed through train stock trading scheme and a rising trend among investors to put more money into exchange-traded funds instead of buying individual stocks may crimp the hoped-for boost to market turnover, brokers say.
Hong Kong Exchanges and Clearing has reported disappointingly low turnover in stocks and derivatives and brokers have been pinning their hopes on the scheme to allow cross-border trading between Shanghai and Hong Kong. But they are now fretting about the challenges ahead.
HKEx last week posted worse-than-expected growth of 2 per cent in net profit to HK$2.37 billion for the first half of this year on reduced turnover in stocks and derivatives.
Average daily turnover in the stock market fell 8 per cent from last year's first half to HK$62.9 billion, while derivatives trading dropped 22 per cent to HK$11.3 billion.
The weak numbers came despite an extension to stock market trading from four hours a day to 5½ hours and a doubling in the length of futures trading to 12 hours with the addition of a night session.
Local brokers will meet executives of the Shanghai Stock Exchange tomorrow to learn more about the scheme, which mainland media said would start on October 13. HKEx has not confirmed the date.
HKEx chief executive Charles Li Xiaojia said in a statement yesterday it would take time for the mainland market to be aligned with Hong Kong's.
"We had to figure out a way to connect the markets while respecting the differences between the current regulatory regimes," Li said. "We need to build a bridge connecting the two markets without fundamentally changing them."
Ben Kwong Man-bun, a director of KGI Asia, said: "Obviously, the market turnover would be higher than the first half because of the stock through train scheme. But since the scheme has quota restrictions and other requirements, this means the turnover would not increase substantially.
"We should not have high expectations unless Beijing increases the quota."
Gary Cheung Wai-kwok, the chief executive of Tung Shing Futures (Brokers), said the scheme would not boost turnover to the stratospheric levels of 2007 but it would still benefit both stocks and futures markets trading.
"We believe it would also benefit the index futures and other derivative products," Cheung said. "When the stock market turnover goes up, there are more opportunities for arbitrage, and the turnover of derivatives would improve as a result."
When Beijing first announced a through train scheme in August 2007, it said mainlanders could invest in the Hong Kong stock market without any quotas. A few months later, the scheme was suspended because of Beijing's fears it would lose control over the programme.
Credit Suisse analyst Arjan van Veen said the cross-trading plan would be capped by a quota that limited mainland investors to 250 billion yuan (HK$314.7 billion) or a maximum of 10.5 billion yuan per day.
Van Veen said this represented less than 20 per cent of the average daily turnover on the exchange and might boost its revenue by only about 5 per cent.
The scheme also restricts Hong Kong investors in Shanghai's market to 300 billion yuan or 13 billion yuan a day.
Hong Kong investors have to use yuan to trade mainland stocks but this is complicated by Beijing's rule that Hongkongers cannot exchange more than 20,000 yuan daily.
Poor turnover in the stock market may also be caused by the fact that investors have increased their investment in exchange-traded funds.
Jane Leung, the head of iShares Asia Pacific for US asset management giant BlackRock, said there were big flows and trading activity into its lead China A-share product listed in Hong Kong, including US$1.4 billion of inflows this year to the iShares FTSE A50 China Index ETF.