New measures set to boost stock connect scheme

Threshold for participation may be lowered: HKEx spokesman

Hong Kong is considering new measures to promote the Shanghai-Hong Kong Stock Connect program, including relaxing the stock market access threshold for mainland investors, a spokesman for Hong Kong Exchanges and Clearing Limited (HKEx) said in a statement e-mailed to the Global Times Monday.

Currently, mainland investors need to have a portfolio value of 500,000 yuan ($80,369) to participate in the stock connect scheme.

"We believe the regulator will reassess the requirement and consider making adjustments," the spokesman said.

A report on Monday by Hong Kong-based newspaper The Sun quoted Chow Chung Kong, chairman of HKEx, as saying that HKEx will have talks with the regulator next year about relaxing the threshold.

But the HKEx spokesman didn't offer any details about the possible schedule for relaxing the threshold.

The Shanghai-Hong Kong Stock Connect program, which was launched on November 17, gives investors mutual market access and is part of an effort to open up the mainland's capital markets.

As well as possible relaxation of the threshold, the total number of stocks that are eligible to be included in the program is expected to increase in the coming months.

The stock connect program is designed to be scalable so that expansion is possible, conditional upon agreement by the exchanges and regulators in both markets, the spokesman said.

The program currently allows mainland investors to buy shares in 273 Hong Kong-listed companies, while Hong Kong and overseas investors have access to 569 mainland stocks listed in Shanghai.

The program is also designed to be replicable, the spokesman said.

At the moment it connects the markets of Hong Kong and Shanghai, but it could be expanded to other markets as well.

Previous media reports said that HKEx had begun talks with the Shenzhen Stock Exchange to launch a Shenzhen-Hong Kong Stock Connect program.

It would be a big step toward opening up the mainland's capital markets if these new rules come into effect, Tan Ruyong, a professor of finance at Shanghai University of Finance and Economics, told the Global Times on Monday.

China's mainland capital markets only offered limited access to foreign investors prior to the stock connect program, with Hong Kong and -overseas -investors previously having to go through the Qualified Foreign -Institutional Investor (QFII) program, which involved greater restrictions on trading.

Some Shenzhen-listed blue chip stocks in the areas of wine and real estate are expected to attract significant attention from foreign investors after the Shenzhen capital market joins the program, Cai Junyi, chief analyst at Shanghai Securities, told the Global Times on Monday.

Given that there wasn't a sudden influx of hot money into the Shanghai capital market after the program was launched, it might ease the progress toward the launch of a Shenzhen-Hong Kong Stock Connect program in the future, Tan said.

Following Shanghai's experience, Shenzhen may seek greater opening- up for its capital market and is expected to make not only shares but financial derivative instruments tradable under the connect program, Tan noted.

The new measures to promote the stock connect program could also boost the currently subdued demand for southbound trading in Hong Kong-listed shares, analysts said.

The threshold of 500,000 yuan makes it hard for mainland retail investors to participate in the stock connect scheme, which is one of the primary factors affecting southbound trading, Hong Kong-based news portal finet.com.cn reported on November 28, citing HKEx Chairman Chow.

In the first four weeks after the program's debut, the average daily turnover for northbound trading in Shanghai-listed shares was 5.84 billion yuan, while the average daily southbound trading turnover was only 757 million yuan, HKEx said in a statement released on December 14.