More connect schemes, commodity and yuan products in HKEx’s new three-year plan
Marker operator’s board has approved blueprint to be unveiled by chief executive Charles Li on Thursday
Hong Kong Exchanges and Clearing will unveil more cross-border schemes and more big plans for pushing ahead with commodities and yuan business in the next three years on Thursday as the local bourse fights to retain its role as a gateway between China and the international market, two sources said.
HKEx’s board has approved the three-year strategic plan which chief executive Charles Li Xiaojia will unveil Thursday. The sources said the blueprint would include various types of cross-border trading connect schemes, an aggressive expansion of commodities products as well as a big push into more yuan products.
“We have the stock connect scheme with Shanghai now and the linkage with Shenzhen has been well prepared,” one source said. “The next step forward in cross-border trading will not be limited to Hong Kong and mainland China and we will consider connect schemes with other markets. We may also launch other types of connect schemes, from bonds to commodities and other investment products.”
Hong Kong linked up with Shanghai from November 2014 in the first cross-border trading scheme, giving international investors access to Shanghai listed A shares via Hong Kong stockbrokers.
Likewise, mainland investors with 500,000 yuan in their securities accounts can trade Hong Kong stocks via a mainland brokers. A similar Shenzhen-Hong Kong stock connect scheme was originally planned to be launched by the end of last year but was delayed due to the mainland market rout. No new timetable has been announced.
It is unlikely all the products will be successful from day one, but it is good for HKEx to try something new
“The Beijing authorities may be busy handling the volatilities of the stock market and defending the yuan now,” the source said. “This may delay its decision to approve the new stock connect scheme or other cross-border trading plans. But eventually, we believe Beijing will give the green light for Hong Kong to launch a new connect scheme with Shenzhen and other connect schemes with other products. This is why HKEx has to prepare itself in preparing these platforms now, so we can start to expand the cross-border trading once Beijing gives the green light.”
The source said besides Shenzhen, HKEx was also looking into developing a commodities connect scheme with London and mainland commodities exchanges, a bond connect scheme and other products.
‘These connect schemes would allow Hong Kong to act as a gateway for international investors to access the mainland stocks, bonds, derivatives and commodities markets while mainlanders could also invest in these products in Hong Kong,” he said.
A survey by the Hong Kong Investment Funds Association found 90 per cent of fund managers want to see the Shenzhen-Hong Kong stock connect as the next cross-border scheme as the Shenzhen markets, which list smaller and medium-sized companies, offer new investment opportunities than Shanghai, where the listed companies are bigger players and traditional firms.
“The Shanghai market has more ‘old economy’ companies that come from traditional industries and more large caps, whereas Shenzhen has more ‘new economy’ companies offering access to small and mid-cap growth stocks which represent interesting opportunities over the longer term,” HKIFA chairman Terry Pan said.
Another source said HKEx planned to aggressively expand its commodities products in the next three years and would like to establish cross-border trading of commodities between Hong Kong, London and mainland China.
HKEx purchased the London Metal Exchange, the world’s largest metals exchange, in 2012 as a first step towards expanding into commodities and reducing its reliance on equities. Three years on, HKEx has launched six metal products in Hong Kong but only a few are trading.
“HKEx would not expect overnight success,” the source said. “Hong Kong does not have a strong background in metal or commodities trading but China has a lot of end users who need trade the LME metal contracts to hedge their risks. If we can attract these investors to trade in Hong Kong, it will expand our commodities market substantially.”
The third area of focus for HKEx is yuan products, with the market operator keen to introduce more yuan products to meet the needs of international traders wanting to hedge their risks in the currency.
In a blog posed on the exchange website on January 11, Li wrote that the volatility of the yuan had brought opportunities to Hong Kong. Yuan futures trading at HKEx increased to a record high open interest at 29,352 contracts on the same day, up from 3,572 on January 4.
The People’s Bank of China has intervened in the yuan market this month to fend off currency speculators, pushing the overnight interest rate for offshore yuan to 200 per cent on Tuesday and boosting the yuan’s value against the US dollar.
Christopher Cheung Wah-fung, the legislator representing Hong Kong’s brokers, said he would welcome the launch of more connect schemes and commodity and yuan products by HKEx.
“The more products for investors and the more connect schemes will bring more business opportunities for Hong Kong brokers and investors,” he said. “It is unlikely all the products will be successful from day one, but it is good for HKEx to try something new.”
