Plans are afoot to expand the “Stock Connect” programs that allow investors in Hong Kong, Shanghai and Shenzen to trade stocks on each others’ bourses. The Hong Kong Monetary Authority says it will expand the programs “at an opportune time”. Forgive our exuberance, if you will, dear readers, but that sounds like the language regulators often use instead of saying, “we have been told to get on with it”.
It would seem that pressure from Greater Bay Area investors is driving a more aggressive liberalization timetable. The Shenzhen-Hong Kong Stock Connect was launched in 2016, two years after the Shanghai version led the way. Quotas were quadrupled in May last year: RMB52 billion ($7.56 billion) for northbound trading links and RMB42 billion for southbound trading links. But there is clearly scope for more. The country is becoming bolder in opening its markets, not just because of pressure from the US-China trade war, but because of its own liberalization timetable. The Stock Connect programs are in the vanguard of reform. They are the best and most obvious way to keep prising open the treasure chest of China’s domestic consumer markets, as well as fund the country’s hi-tech boom that is well under way.
According to the Hong Kong Stock Exchange, as of November 15, 2018, total turnover of northbound trading had reached RMB8.77 trillion (US$1.31 trillion), with a net inflow of RMB614.8 billion, while HK$6.55 trillion was traded southbound, with a net inflow of HK$812.8 billion. Daily northbound trading reached a record RMB76.3 billion on April 8 this year. Southbound trading, however, has not surpassed the record of HK$43.8 billion set on February 6, 2018.
Forgive the haze of stats, but what that adds up to is a fraction of the domestic numbers. There is huge upside potential here for foreign institutional investors. And it is becoming ever clearer from senior leaders’ public statements that foreign capital is going to play a strong supporting role, if not a leading one, in the next stage of the country’s economic development.
We are holding our breath.
Read more on Global Times.