Short-selling to be offered in stocks

Shanghai-HK bourse link to expand products, categories

The short-selling mechanism that will soon be launched under the Shanghai-Hong Kong Stock Connect scheme could be off to a slow start, experts said on Tuesday.

Still, the forthcoming move is considered a significant step in reforming the stock linkup which has come across as underwhelming in terms of turnover.

At the start, the mechanism would be subject to a set of limitations. However, it would surely be a significant component of the cross-border stock tie-up, Charles Li Xiaojia, chief executive of Hong Kong Stock Exchanges and Clearing Ltd (HKEx), said at an event in Hong Kong on Monday to celebrate the first trading day of the Year of the Sheep, Chinese news portal sina.com.cn reported on Monday.

Li's remarks came after HKEx told brokers in a circular released on February 18 that a mechanism to facilitate the short-selling of eligible Shanghai-listed A shares through the stock connect scheme will be made available starting from Monday.

Short-selling allows investors to borrow shares in a company from a broker, sell them and repurchase them later at a lower price, profiting from declining stock prices.

In a sign of vigilance against any big fluctuations from the introduction of the mechanism, the short-selling ratio for any short-selling securities would be capped at 1 percent on any trading day, and the cumulative limit for a short-sold stock in any 10 consecutive trading days is set at 5 percent, read the circular.

"The strictly confined mechanism is less likely to make a big splash in the equities market in the beginning, but it nonetheless opens a window [to allow for short-selling activities in the mainland bourse]," Li Daxiao, chief economist of Shenzhen-based Yingda Securities, told the Global Times on Tuesday.

Dismissing fears of any plunge in short-selling securities under the forthcoming mechanism, Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology, said that the short-selling provision is designed to provide investors with a market environment similar to that in Hong Kong and overseas markets.

"A truly connected stock linkage has yet to be in place," Deng told the Global Times on Tuesday, citing a variety of differences in trading rules between the markets ranging from products on offer to trading hours and tax policies.

He urged for more efforts to improve the existing trading rules so as to assure jittery investors who are unfamiliar with the market across the border.

The Shanghai-Hong Kong Stock Connect scheme, which was inaugurated on November 17, 2014, has failed to generate as much interest as was initially expected.

After two months, overseas buyers had filled only one-third of the aggregate 300 billion yuan ($48 billion) quota to invest in mainland shares, which was expected to be used up in 23 days, the South China Morning Post reported on Monday.

The aggregate quota for mainland investors to purchase Hong Kong stocks, set at 250 billion yuan, had seen only 10 percent of the total after two months, said the report.

In his remarks to lift investor morale for the lackluster stock tie-up, HKEx Chairman Chow Chung-kong said Monday at the ceremony in Hong Kong that the stock connect scheme will be expanded to include more products and asset categories.

The establishment of a linkup between bourses in Shenzhen and Hong Kong is also among the HKEx's priority, Chow said, adding that the exact time frame for launching the Shenzhen-Hong Kong stock connect remains in the hands of policymakers.

Yingda Securities' Li said he expects the Shenzhen-Hong Kong stock linkup to be opened in the middle of the year.