Nov 18, 2014

    Mainland-bound trades hit quota as Shanghai-HK bourse link debuts


    INTERNATIONAL buyers snapped up Chinese stocks yesterday at the debut of an exchange link that allows Hong Kong and Shanghai investors to trade shares on each other's bourses, a major step towards opening China's tightly-controlled capital markets.

    The so-called Stock Connect scheme gives foreign and Chinese retail investors unprecedented access to the two exchanges, which some analysts said could eventually lead to the creation of the world's third-largest stock exchange.

    Shares in both Shanghai and Hong Kong opened around 1 per cent higher but quickly gave up some gains, with Hong Kong falling into negative territory.

    The volume of "northbound" trade - investors with Hong Kong accounts buying mainland shares - was far greater than trade from mainland investors in the opposite direction, with the daily buying quota for Shanghai stocks exhausted by mid-afternoon.

    Investors were wary of chasing up shares, given the strong market rally in the lead-up to the launch on expectations of an increase in fund flows from the scheme, said Zheng Weigang, senior trader at Shanghai Securities.

    "In the longer run, however, the connect will surely benefit both markets as China increasingly opens up to the outside world," the trader added. "Particularly, the connect will help push the mainland's rampant speculative stock culture towards a more investment-oriented market."

    The CSI300 index of top Chinese shares closed down 0.5 per cent while the Shanghai Composite Index fell 0.2 per cent. The Hang Seng Index in Hong Kong ended down 1.2 per cent.

    Analysts had expected much of the initial cash flow to be northbound, with foreign investors on the Hong Kong Exchange able to collectively buy up to a daily quota of 13 billion yuan (S$2.8 billion) of mainland stocks.

    The expected fund inflow had helped push the SSE180 Index and SSE380 Index - the two main Chinese destinations for foreign investment through the scheme - up more than 10 per cent and 6.5 per cent since late last month.

    Southbound investment, capped by a daily quota of 10.5 billion yuan, is likely to be less active.

    By mid-afternoon, the whole northbound quota had been used, meaning no further buy orders would be accepted for the remainder of the day. Less than 15 per cent of the southbound quota was taken up.

    "It took a longer-than-expected period of time for such a small daily quota to be used, indicating overall sentiment in Shanghai remains cautious," said Zhang Gang, senior analyst at Central Securities in Shanghai.

    Turnover in both markets was roughly in line with daily numbers.

    However, the stock connect could boost the average daily value of stock trading in Hong Kong by about 38 per cent by next year, French bank BNP Paribas estimated.

    "Chinese investors will take Hong Kong as a place to put their long-term bets. So that's why I think in the long run Hong Kong will benefit from this," said Alex Wong, asset management director at Ample Finance Group in Hong Kong.