Hong Kong and China securities regulators plan to expand the two stock connect schemes linking the Hong Kong, Shanghai and Shenzhen bourses to cover more than 80% of listed stocks, including foreign equities with primary listing in Hong Kong, in order to bolster the liquidity.
The move will see all constituent stocks of the Shanghai and Shenzhen indexes with market capitalisation of more than 5 billion RMB (US$715.9 million) become eligible for trading via the northbound channel, where investors in Hong Kong can buy and sell Mainland stocks. Current eligibility is limited to stocks of benchmark China indexes.
Meanwhile, investors in China will be able to trade stocks of foreign companies with primary listing in Hong Kong that are constituents of the Hang Seng composite indexes through the southbound channel.
“This will strengthen mutual access between the Mainland and Hong Kong stock markets and provide additional liquidity for both markets,” Hong Kong’s Securities and Futures Commission (SFC) and China Securities Regulatory Commission (CSRC) say in a joint statement on December 19.
According to Julia Leung, acting chief executive officer of SFC, the expansion will give international investors in Hong Kong greater choice of China A-shares and consolidate the city’s position as a gateway to China.
“In particular, the inclusion of foreign companies primary listed in Hong Kong is of strategic importance to Hong Kong as a leading fundraising platform for international companies,” says Leung, who was recently named permanent CEO effective January 1.
The regulators expect to take three months to implement adjustments for the expansion. The list of eligible stocks and the official launch date has not been finalised.
The Hong Kong-Shanghai Stock Connect was launched in 2014, followed two years later by the link to Shenzhen. Thus far, there’s no clear pattern of trading via the north and southbound channels.
For instance, the one-month net flow in northbound trading was 44.68 billion RMB as of December 19, more than five times heavier than the 8.45 billion RMB in southbound trading.