Hong Kong stock market to benefit from new mainland investor scheme

Central bank prepares for 'QDII2' trials to boost private buying of overseas stocks

PUBLISHED : Sunday, 13 January, 2013, 12:00am
UPDATED : Sunday, 13 January, 2013, 4:34am

The Hong Kong stock market is poised to receive a windfall from a renewed effort by Beijing to allow more mainland citizens to buy securities listed on overseas exchanges.

The People's Bank of China announced late on Friday that preparations are under way for trials of its so-called qualified domestic individual investor (QDII2) scheme. The scheme is part of a big initiative this year to increase outbound investment by the private sector. The mainland's central bank did not provide details.

It is a key step towards greater financial liberalisation that is likely to be ushered in by premier-in-waiting Li Keqiang, who has vowed to pursue major policy reforms to stimulate further economic growth.

China, which had US$3.31 trillion in foreign-exchange reserves at the end of December, has been moving steadily since 2009 to develop the yuan into an international currency.

Individual mainland investors now can purchase stocks and other securities in foreign capital markets only through authorised funds under the qualified domestic institutional investor (QDII) initiative established in 2006.

"I expect the Hong Kong stock market to directly benefit from the QDII2 initiative," Hu Yifan, the chief economist at Haitong International Securities, said yesterday. "It could have a positive impact on the Hang Seng Index."

Hu said the new scheme appeared to be similar to the so-called through-train investment programme announced in 2007 to allow mainland citizens to trade Hong Kong stocks directly under a trial run.

It was a ground-breaking move to direct capital outflow and boost investor participation in mainland companies listed in Hong Kong, which traded at a huge discount to their A-share counterparts.

The through-train programme triggered a buying stampede even before its official launch, with the benchmark Hang Seng Index surging past 29,000 points for the first time to set a record high in October 2007.

But the State Administration of Foreign Exchange scrapped the through-train initiative's implementation in January 2010 and merely expanded the QDII scheme for overseas investments through designated funds.

Hu said the People's Bank of China was expected to provide more details about QDII2, including the cities where it will be implemented, the qualifications for investors, and the Hong Kong or mainland banks involved.

Last April, Hong Kong Exchanges and Clearing said it would set up a market-data hub in Shanghai this year to provide details on Hong Kong stocks