The Shanghai stock market is unlikely to be impacted much by an upcoming short-selling service under the Shanghai-Hong Kong Stock Connect program, according to observers.
The first trial run of the new short-selling facility was completed over the weekend.
But market experts say the limited A-share holdings in the hands of overseas investors, and restrictions on the new service itself, would mean that only a small amount of short selling would take place at the beginning, the Hong Kong Economic Journal reported Monday.
It is hard to attract participation as long as there are restrictions over the short-selling of A-shares, Soren Aandahl, research director of Glaucus Research Group California LLC, was quoted as saying in an emailed reply to HKEJ.
Glaucus, a short-seller known for its red-flag reports on firms such as China Metal Recycling Holdings Ltd. (00773.HK) and China Child Care Corp. Ltd. (01259.HK), has no plan to take part in short-selling via the through train in the near- or medium term.
One needs a transparent level-playing field for short-sellers to operate in a market, Aandahl said.
Eric Chow, investment director of Value Partners Hedge Fund, a unit of Value Partners Group Ltd. (00806.HK), said the new mechanism is supposed to be limited to stock borrowing among foreign investors.
There may not be enough stock for the short-selling mechanism to work effectively, Chow said, adding that the Shanghai stock market is unlikely to be impacted much.
The Stock Connect currently allows a daily transaction volume of up to 13 billion yuan which is relatively small compares to the trillion-yuan level transaction volume in the overall mainland stock market, Chow noted.
Hong Kong Exchanges and Clearing Ltd. chief executive Charles Li said earlier that the short-selling mechanism could be launched before the Chinese New Year holidays.
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