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The Connect Hall located inside the at HKEX headquarters in Central, Hong Kong. Photo: Jonathan Wong

Stock Connect: fewer holidays to bring US$110 billion trading boost for HKEX and mainland bourses

  • Optimisation process could reduce the number of non-trading days by half, likely starting from next year, with tweaks to settlement and clearing facilities
  • Foreign investors could get at least four extra days to trade A shares, while mainland funds get eight more days to trade Hong Kong-listed stocks, brokers say
A move to reduce Stock Connect trading holidays could crank up turnover by as much as US$110 billion annually from next year, giving Hong Kong Exchanges and Clearing and its counterparts in Shanghai and Shenzhen a shot in the arm.

Global money managers will probably get up to five additional days annually to trade yuan-denominated stocks, following a plan to expand clearing and settlement facilities on affected holidays, some brokers estimated. Mainland investors in turn could get about eight extra days to trade Hong Kong-listed stocks, they said.

About 104 billion yuan (US$15.3 billion) worth of stocks changed hands every day through the Northbound channel in the first six months this year, according to stock exchange data, versus HK$33.2 billion (US$4.2 billion) via the Southbound channel. A record 120.1 billion yuan and HK$41.7 billion changed hands daily in 2021.

“This will be good in making sure of continuity in trading and for investors to hedge market risks,” said Dai Ming, a fund manager at Huichen Asset Management in Shanghai. “There are more occurrences of black-swan events this year that have triggered wild swings on these markets.”

Source: HKEX Interim Report August 2022

The joint effort will help minimise market disruptions caused by a mismatch in holiday calendars, frustrating fund managers on both sides of the border. Index compiler MSCI has cited the issue as one hurdle preventing it from adding more Chinese equities in its emerging-market indices, which track companies with US$6.47 trillion capitalisation.

The Stock Connect scheme, which linked Hong Kong with Shanghai in November 2014 and with Shenzhen in December 2016, was created to foster a two-way investing flow, allowing China to widen access to global investors and deepen its capital markets, within a capital-control regime.

Overseas investors held 2.6 trillion yuan of Chinese stocks on June 30, or about 3.5 per cent of the onshore market capitalisation, according to official data. Mainland funds held 1.9 trillion yuan worth of Hong Kong-listed stocks, or 5.5 per cent of the city’s market capitalisation.

HKEX CEO Nicolas Aguzin, during an interview at the SCMP newsroom in Causeway Bay in June 2022. Photo: Jelly Tse
Reinvigorating transactions on the Stock Connect will be a bonus for the city’s bourse operator HKEX, whose CEO Nicolas Aguzin oversaw the worst interim performance in five years amid a squeeze in trading fees, a near-collapse in initial public offerings, and losses from its investment portfolio.
A regulatory crackdown on internet-platform companies, Covid-19 lockdowns and slowing growth momentum have soured the prospect of Chinese stocks, prompting JPMorgan Chase to call them “uninvestable” at one stage. The average daily turnover on Stock Connect shrank by 15 per cent to US$19.5 billion in the first half of this year, HKEX said last week.


HKEX CEO Nicolas Aguzin on the future of Hong Kong’s capital market

HKEX CEO Nicolas Aguzin on the future of Hong Kong’s capital market
The optimisation of the trading calendar is expected to reduce by half the number of days currently unavailable for trading, the China Securities Regulatory Commission said in a statement on August 12. The optimisation process will require about six months and the 2023 trading calendar has not been released.

The clearing houses in Hong Kong and the mainland will take additional shifts on holidays to conduct trade settlements, readjust the settings on share-registration days for new trading sessions and work out corresponding risk-management measures, according to the CSRC.

“The move will help Stock Connect participants better prepare for changes on the market,” said Fu Beijia, an assistant fund manager at HSBC Jintrust Fund Management in Shanghai. “The optimisation is expected to reduce the number of non-trading days and improve continuity in trading.”

The Stock Connect is shut for a total of 36 days this year, according to the calendar, including 24 mutual days for all the three markets. The other 12 days affect one or the other channels.

The number of trading days will increase by four each year going forward for offshore investors to trade yuan stocks, according to China International Capital Corp, while Guotai Junan Securities estimated five more days. Both of them expect mainland investors to gain at least eight days to trade Hong Kong-listed stocks.

The importance of trading calendars for both markets have gained significance this year, when price swings have become wilder on major economic and political events. China’s crackdown on tech companies, Russia’s invasion of Ukraine, Shanghai lockdowns, and China-US hostility are among some of the biggest market-moving headlines.

The HSI Volatility Index hit a two-year high in March, while a gauge of the 30-day realised swings on the CSI 300 Index jumped to a level not seen since April 2020 in May.

“Less unsynchronised trading closure on the mainland China and Hong Kong markets will help weed out some undesired discrepancy in stock prices,” said Dai of Huichen Asset Management.