Date
24 September 2017
Stock Market Reaction To China Rate Hike

The Big Picture: CROSS-BORDER TRADING

In a key initiative to open up its capital market further to overseas investors, China announced on Thursday a mutual market access mechanism between Shanghai and Hong Kong stock exchanges, paving the way for greater cross-border investments and money flows.

The two bourses will be connected under a pilot program that will allow a combined 23.5 billion yuan (US$3.8 billion) of daily cross-border trading, the China Securities Regulatory Commission said in a joint statement with Hong Kong’s Securities and Futures Commission. 

The mutual market access will allow mainland investors to trade up to 10.5 billion yuan of Hong Kong-listed stocks a day through the Shanghai exchange, while 13 billion yuan of mainland shares will be available for overseas investors through Hong Kong.

The total quota for cross-border trading is 250 billion yuan for Hong Kong-listed stocks and 300 billion yuan for Shanghai shares. It will take six months of preparations before the plan can be implemented.

Linking the exchanges will “further improve the opening and healthy development of capital markets in China and Hong Kong”, Premier Li Keqiang said at the Boao Forum for Asia Annual Conference Thursday morning before details of the quota were announced.

Hong Kong’s Financial Secretary John Tsang described the move as one of great significance, paving the way for further financial collaboration between the two sides. The link will further raise Hong Kong’s profile as a leading offshore renminbi center.

Brokerages on both sides of the border will be the obvious winners from the liberalization move. Reflecting the expected benefits, Guotai Junan International (01788.HK) shares soared 25.9 percent at one point Thursday and China Galaxy Securities (06881.HK) shot up nearly 10 percent. CITIC Securities (600030.CN), China’s largest brokerage by market capitalization, rallied 9.7 percent and Huatai Securities (601668.CN) racked up more than 6 percent.

Hong Kong Exchanges and Clearing Ltd. (00388.HK), which was suspended from trading pending the announcement, also stands to gain.

In a note to clients, JP Morgan said major tech stocks such as Tencent Holdings (00700.HK) and Lenovo Group (00992.HK) could be tempting targets for investors as such large-cap internet plays are not available in the mainland market. With wider choices to invest in specific stocks, investors could make them their favorite picks.

Tencent started climbing Thursday afternoon and ended the day 7.5 percent higher to become the best performing blue chip. Lenovo picked up nearly 5 percent.

Also, gaming stocks, which are exclusive to Hong Kong, will gain from the tie-up between the Hong Kong and Shanghai bourses.

– Contact HKEJ at [email protected]

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