The short selling that Shanghai-Hong Kong Stock Connect will allow from next month is unlikely to increase the volatility of the A-share market, Goldman Sachs said Tuesday.
“The short-sale mechanism, especially in the initial phase, will be highly regulated, with a quota, so the total amount of short sales will account only for a small portion of the whole A-share market,” said Kinger Lau, chief China strategist at the US bank.
Hong Kong and global investors will be able to short sell A shares through the cross-border trading scheme next month, and brokerage firms will test the system at the end of this month, the Hong Kong stock exchange told brokerages.
Lau said that Hong Kong equities are now a better investment choice than A shares after the sharp rally in the mainland market in the past two months.
“We think Hong Kong stocks are a bit better than the A share market from the perspective of risk versus return. I think it is likely there will be some correction in A shares,” he said.
China’s central bank is expected to cut the benchmark interest rate around the Lunar New Year, which will benefit both the A-share and Hong Kong stock markets.
Meanwhile, the link-up between the stock markets in Hong Kong and Shenzhen, mentioned by Premier Li Keqiang this month, will be very important for the A-share market as a whole, as it will satisfy a key condition for A shares to be included in the MSCI Emerging Market Index, Lau said.
“Without accessibility to the Shenzhen stock market for global investors, it will be very difficult for China A shares to be included in global equity benchmarks,” he said.
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