Hong Kong’s reboot of trading in yuan shares timely, even if it only attracts mainland Chinese investors, analysts say

The yuan’s illiquidity will not be attractive for international investors or local companies looking to go public, even if it does not present a hurdle for mainland investors, Morton Securities’ chairman says

Allowing southbound trading in yuan-denominated shares under the Stock Connects could help the city reboot such trading activity, analyst says

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Hong Kong might be the largest offshore yuan market, but its total yuan deposit is not big enough for even one week’s turnover at the city’s stock exchange. Photo: Bloomberg

Published: 7:31pm, 7 Oct 2021Updated: 10:51pm, 7 Oct 2021

It is the right time to reboot trading in yuan-denominated shares in Hong Kong, even if it only attracts mainland Chinese investors and not international traders, analysts said.

Allowing mainland investors to trade Hong Kong stocks in the yuan through the southbound Stock Connects would promote yuan share trading in the city. A lack of yuan liquidity in the city, however, means international investors will be reluctant to trade in such stocks, while companies will be discouraged from issuing shares in the Chinese currency, according to analysts.

“The yuan is still not an international currency and the pool of offshore yuan available is still relatively small compared with the Hong Kong dollar or the US dollar. When listed companies do fundraising, they would like to access to the maximum amount of investors for best possible pricing and terms. Because of this, the Hong Kong dollar or the US dollar are preferred,” said Joseph Tong Tang, chairman of Morton Securities.

The comments come after Carrie Lam Cheng Yuet-ngor, the city’s leader, outlined a number of measures aimed at furthering enhancing the city’s role as an international financial hub in her last policy address on Wednesday. One of the measures outlined was allowing mainland Chinese investors to trade Hong Kong stocks in the yuan through the Stock Connects.

The city’s Securities and Futures Commission said the same day that it had set up a working group along with the Hong Kong Monetary Authority and exchange operator Hong Kong Exchanges and Clearing (HKEX) to study how to promote yuan-denominated securities in Hong Kong, including allowing mainland investors to use the yuan instead of the Hong Kong dollar while trading local stocks through the southbound Stock Connects.

Chief Executive Carrie Lam Cheng Yuet-ngor during her 2021 policy address in Hong Kong on Wednesday. Photo: Sam Tsang