Mainland, HK unveil cross-border trading plan for stocks

A plan to allow cross-border stock trading between the Hong Kong and Shanghai stock markets was presented on Thursday, the mainland's latest move to open up its capital markets.

The trial will begin in six months and enable dealers to invest in designated shares through local securities firms or brokers, the China Securities Regulatory Commission said in a statement with the Securities and Futures Commission of Hong Kong.

"It is an important step in the opening up of China's capital market and will enhance capital market connectivity between the mainland and Hong Kong," it said.

The pilot program allows a maximum cross-border investment of 550 billion yuan ($90 billion). Investors in Shanghai and Hong Kong will be able to buy and sell up to 23.5 billion yuan of stocks in certain companies each day on each other's exchanges under the program.

Premier Li Keqiang said at the Boao Forum for Asia that the plan "will enable us to expand market access, foster a better business environment to unleash greater dividends of reform, spark social creativity and stabilize market expectations".

The Shenzhen Stock Exchange has not yet been included in the program.

Hong Kong and foreign investors will be allowed to buy as much as 13 billion yuan a day in Shanghai-listed stocks through the Hong Kong market.

Mainland investors, which will be limited to institutions and individuals holding at least 500,000 yuan in their stock and cash accounts, will be able to purchase up to 10.5 billion yuan daily in Hong Kong-listed stocks through the Shanghai bourse.

Some analysts said the program will lift the Hong Kong stock market thanks to increased investment because many mainland investors are interested in buying H-shares — mainland companies listed in Hong Kong — but have been previously restricted from doing so.

"Trade volume in the Hong Kong stock market will be largely boosted," said Oliver Meng Rui, a professor at the China Europe International Business School in Shanghai.

He said the quota is significant to Hong Kong because it accounts for almost a quarter of the current daily turnover.

Rui said many mainland investors will try to diversify their portfolio by purchasing Hong Kong-listed stocks through the program.

As Hong Kong shares are denominated in the Hong Kong dollar, it helps investors to reduce risks of holding only renminbi assets, he added.

Lu Wenjie, an H-share strategist at UBS Securities, said the pilot program will also help buoy up mainland stocks.

Regardless of the bad performance of the mainland's A-share market over the past few years, there are still some "good-quality" stocks attractive to offshore investors, he said.

"Some consumption and machinery stocks are only available in the A-share market, and I believe their value will draw the attention of foreign investors," Lu said.

He added that the trial program will discourage speculation and help create a healthy investment environment that centers on value.

The benchmark Shanghai Composite Index surged by 1.38 percent to 2134.3 at its close on Thursday, with brokerages leading the rally.

The gauge index that traces brokerage companies soared by 6.7 percent. China CITIC Securities, the nation's biggest brokerage in market value, grew 9.74 percent.

In Hong Kong, the Hang Seng Index jumped 1.5 percent, hitting its highest close since Jan 2. CITIC Securities gained 9.2 percent and Haitong Securities rose by 7.5 percent.

"It is for sure good news for securities companies, as commission income is to expand largely with the new rule facilitating cross-border stock trading," Rui said.

Li Fei, an independent financial commentator, said the pilot scheme will create new investment channels for the renminbi, helping internationalize the currency.

It will also consolidate Hong Kong's position as an offshore renminbi center, he said.

Jiang Shu, a foreign exchange analyst at Industrial Bank in Shanghai, echoed the view.

"This is a step in China's gradual liberalization of its capital account," he told AFP.

"The authorities will definitely pay close attention to the capital flows between Shanghai and Hong Kong and introduce supportive regulatory measures."

Currently, overseas investors can invest in Shanghai and Shenzhen only through a qualified foreign institutional investors program, or QFII, that grants quotas for A-share investment.

QFII quotas had reached $53.4 billion, and the RQFII quota — which allows foreign institutional investors to use the renminbi to invest in the mainland rather than the US dollar — had reached 200.5 billion yuan by the end of March, according to the State Administration of Foreign Exchange.