White Collar

Are too many national holidays dampening the success of Stock Connect?

Trading link between Hong Kong and Shanghai was closed for 27 days holiday this year, or 10 per cent of its possible trading time

PUBLISHED : Monday, 17 October, 2016, 11:12am
UPDATED : Monday, 17 October, 2016, 11:12am

As the much-anticipated Shenzhen-Hong Kong Stock Connect trading link starts testing this week, to gear for an official launch next month, officials might be wise to look closely not only that its systems work seemlessly, but at its holiday schedule.

This year alone, the stock connect between Hong Kong and Shanghai has had to suspend trading for a total 27 days out of the year’s total 261 available working days. That’s more than a tenth of all days.

So many of those days were simply because either the mainland or Hong Kong were having a public holiday, meaning cross-border trading had to be suspended for both sides

Hong Kong has 17 annual public holidays in a year, among the highest worldwide. Mainland China took the whole week off during Lunar New Year and National Day in October, 17 days off in total.

To make things worse, holiday times in Hong Kong and mainland are not synchronised. Hong Kong stock market closes for Easter and Christmas while the China market remains open during both.

But clearly, because of the nature of how it works, if one is closed, the other can’t trade, brining either north or south traffic to a standstill.

Brokers expect the new Shenzhen-Hong Kong link to mirror the same holiday rules as Shanghai-Hong Kong, but some are concerned those closed days could deter some traders from embracing the system as tightly as hoped, on top of two other main issues already aired: that the number of stocks avaiable for duel trading is limited, and a lack of liquidity.

The launch of the Shenzhen-Hong Kong link, now pencilled in for November 21, will make 880 Shenzhen-listed stocks available to international investors, and 568 Shanghai listed stocks, a considerable widening of choice.

For mainland investors, the number of stocks via the new trading link will also widen to 418 Hong Kong stocks, considerably more than the 312 Hong Kong stocks available through the Shanghai link.

Last month mainlanders on average traded HK$7.96 billion worth of Hong Kong stocks daily, around 10 per cent of total Hong Kong turnover, and nearly five times more than a year earlier (HK$1.69 billion).

But just think how volumes could be improved, if for instance, trading was still allowed to happen, even when one side is enjoying a national holiday. Losing 10 per cent of your trading volume, just to allow for a few days off surely seems excessive, especially as the whole Stock Connect concept is still in its early days, is yet to be fully supported by traders in either market, let along those overseas.