Stock Connect

Foreign investment in Shenzhen stocks exceeded mainland trade in Hong Kong shares in link’s first year

Shenzhen-Hong Kong Stock Connect success has contributed to inclusion of A shares in MSCI index, says China Securities Regulatory Commission vice-chairman

PUBLISHED : Tuesday, 05 December, 2017, 9:01am
UPDATED : Tuesday, 05 December, 2017, 7:57pm

The Shenzhen-Hong Kong Stock Connect scheme, which celebrates its first anniversary on Tuesday, reported that more international investors traded in Shenzhen stocks than mainland Chinese bought Hong Kong shares during the past year.

The volume of Shenzhen shares traded by Hong Kong-based investors, the so-called northbound trade, stood at 875 billion yuan (US$132.24 billion) for the year until Friday, with a net capital inflow of 148.5 billion yuan, according to Hong Kong stock exchange data.

The trade in Hong Kong shares by mainland investors, or southbound trade, stood at HK$475.9 billion (US$60.9 billion), bringing a net capital inflow of HK$111.5 billion into the Hong Kong markets during the same period.

“The Shenzhen-Hong Kong Stock Connect has been working smoothly since its launch a year ago. It has been a successful scheme to introduce more cross-border trading between Hong Kong and Shenzhen,” said Gary Cheung Wai-kwok, chairman of the Hong Kong Securities Association.

Who are the winners in mainland-Hong Kong stock connect trading?

Cheung said southbound trading through the Shenzhen and Hong Kong connect was lower than northbound trading because the Shanghai and Hong Kong connect also allows mainland investors to trade Hong Kong stocks.

The connect between stock exchanges in Shenzhen and Hong Kong, launched on December 5, 2016, followed a link between Hong Kong and Shanghai that was established in 2014.

The schemes allow international investors to buy Shanghai and Shenzhen stocks through Hong Kong brokers, while mainland investors can invest in Hong Kong stocks through mainland traders.

“We would like to see the connect scheme expand to include more stocks, funds and other products for cross-border trading in future,” Cheung said.

Fang Xinghai, vice-chairman of the China Securities Regulatory Commission, said the success of the stock connect had made the A-share market significantly more attractive for overseas investors, and had contributed to the inclusion of A shares in the MSCI benchmark index.

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

The commission will continue to improve the connect mechanism, provide more risk-management tools for domestic and foreign investors, and further facilitate the internationalisation of capital markets in China, Fang said.

“The Shenzhen-Hong Kong Stock Connect has facilitated global asset allocations for investors in both the mainland and Hong Kong, and improved operational and financial standards at companies listed on the Shenzhen Stock Exchange,” said Wang Jianjun, the Shenzhen Stock Exchange president.

“The next step for Shenzhen Stock Exchange is to promote the inclusion of ETFs in schemes, optimise holiday trading arrangements and continuously improve cross-border capital services,” Wang added.

Charles Li Xiaojia, the Hong Kong Exchanges and Clearing chief executive, said the local bourse would continue to work with mainland exchanges and authorities to improve the connect schemes and to add in more products such as exchange-traded funds and bonds to the schemes.