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HONG KONG (UPDATED) – A landmark trading link between Hong Kong and Shanghai’s stock exchanges officially launched Monday, November 17, in a move that is expected to see billions of dollars in daily cross-border transactions and partially open up China’s closeted equities markets.
At the opening ceremony, Charles Li, chief executive of Hong Kong’s stock exchange declared it a “historic” moment and hailed a “new era” of trade, while chairman Chow Chung Kong said it was a “breakthrough in the opening up of China’s financial market”.
The Shanghai-Hong Kong Stock Connect is expected to allow the equivalent of US$3.8 billion a day in cross-border transactions. It will enable international investors to trade selected stocks on Shanghai’s tightly restricted exchange and let mainland investors buy shares in Hong Kong.
However, by mid-morning trade Hong Kong stocks slipped 0.41%, or 98.48 points, to 23,988.90. Shanghai shares rose 0.30%, or 7.45 points, to 2,486.27.
Hong Kong-based analyst Jackson Wong told Agence France-Presse: “Investors had a lot of hype on this program. It’s a typical situation where investors are taking profits from the huge run up. They are taking a breather to see how this will go.”
At the opening ceremony in Shanghai, Xiao Gang, head of the China Securities Regulatory Commission, said the new platform was “conducive to the internationalization of the renminbi”.
He added: “Shanghai-Hong Kong Stock Connect is a major initiative to promote mutual opening up of the capital markets in the two cities. It’s a major institutional innovation of the capital markets.
‘Historic opportunities’
“China’s capital markets now face historic opportunities.”
The creation of the trading platform is seen as a key step towards greater financial liberalization in the world’s second largest economy.
But it is subject to strict limits in order to preserve capital controls in China, where Communist authorities keep a tight grip on the yuan currency.
If an investor buys stocks in the other market, when they sell the money can only go back to their home market account, a so-called “closed path” to prevent “hot money” leaking out.
Beijing has granted an initial cumulative quota of 250 billion yuan ($41 billion) for trading of Hong Kong stocks, while 300 billion yuan will be allowed for the Shanghai market, with daily allowances of 10.5 and 13 billion yuan respectively.
The Hong Kong Monetary Authority (HKMA), the city’s de facto central bank, Monday lifted a daily cap for converting the local dollar to yuan in a bid to facilitate the trading link.
Analysts say the lifting of the limit will bring easier access to renminbi for local residents and encourage investors to use the currency.
By 10:30am (0230GMT) northbound investment was worth 8.18 billion yuan, while HK$1.04 billion ($134 million) had travelled south.
China’s premier Li Keqiang announced plans for the project in April as part of Beijing’s push to liberalize its economy and gradually to make the yuan more freely convertible.
It had been due to kick off in October but was delayed for weeks, with technical issues blamed.
Plans for a similar tie-up in 2007 sparked a surge in share prices in both bourses but they were eventually scrapped as the global financial crisis unfolded. – With Dow Jones Newswires / Rappler.com
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