A landmark stock trading link program allowing Hong Kong and Shanghai investors to buy and sell on each other’s stock exchanges was officially launched on Monday, marking the start of one of China’s most significant moves to further open its capital markets.
Under the much-anticipated trading program, investors are allowed to trade eligible shares listed on either market through local securities firms or brokers.
The scheme allows a maximum cross-border investment of 550 billion yuan ($90 billion) and a daily two-way quota of 23.5 billion yuan ($3.8 billion).
International investors plowed money into Shanghai’s stock market, maxing out their daily limit on Monday. In contrast, the flow of money in the opposite direction to was just a trickle on the first day.
“Today we are going to witness history,” C.K. Chow, chairman of stock exchange operator Hong Kong Exchanges and Clearing, said at the opening ceremony. “It is a breakthrough in the opening up of China’s financial markets and an important milestone in the development of Hong Kong as a unique gateway between the mainland and international investors.”
Chow and Hong Kong leader Leung Chun-ying banged a gong at the Hong Kong stock exchange to mark the start of trading. In Shanghai, city Communist Party Secretary Han Zheng and China Securities Regulatory Commission Chairman Xiao Gang did the same.
The stock connect gives all sorts of investors outside mainland China access to the stock market in the world’s No. 2 economy for the first time. Until now, access has been closely managed, mainly through a quota program for select fund managers representing a fraction of the overall market.
In a sign of the huge demand from global investors, Hong Kong’s daily 13 billion yuan ($2.1 billion) quota for mainland China shares in so-called “northbound” trading in the stock connect was used up by mid-afternoon.
The trading link also gives wealthy Chinese investors access to a market outside of the mainland for the first time. But Chinese investors only used up 17 percent of their daily 10.5 billion yuan ($1.7 billion) limit for Hong Kong stocks by the end of the day, according to data posted on the Shanghai Stock Exchange website.
Trading is subject to overall limits of $49 billion for Shanghai shares and $40 billion for Hong Kong shares. Officials say the trading limits are in place so the stock exchanges can regulate the pace of turnover. Investors are also restricted to buying and selling selected stocks, consisting of 568 mainly blue-chip companies on the Shanghai exchange and about half that number in Hong Kong.
While Hong Kong has officially been part of China since Beijing took control of the former British colony in 1997, the Asian financial hub retains its own separate legal and financial system and currency.
The stock link is also expected to expand Hong Kong’s role as a trading hub for China’s tightly-controlled currency, the yuan, which Beijing is eager to promote abroad. Last week Hong Kong dropped a daily cap on how much yuan residents are allowed to buy.
“It’s really the beginning of a new era,” said Hong Kong Exchanges CEO Charles Li. When asked by reporters about lackluster gains for Hong Kong shares on the first day, he said the link was “a massive bridge, this is a massive road, and it is going to be here not for days, not for weeks, not even for months, it is going to be here for years and decades.”
Story compiled with the information from Associated Press and Xinhua News Agency.
CCTV America’s Cathy Yang reported this story.
Hong Kong-Shanghai stock link launchesA landmark stock trading link program allowing Hong Kong and Shanghai investors to buy and sell on each other's bourse was officially launched on Monday, marking the start of one of China's most significant moves to further open its capital markets. CCTV America's Cathy Yang reports.
For more on the issue, CCTV America’s Michelle Makori talked with Yonghao Pu with UBS Wealth Management and Jonathan Brodsky, the managing director of Advisory Research.