Stock Connect will be ‘unaffected’ by new PBOC caps on capital outflow
The new cap ordered by the People’s Bank of China on the outflow of yuan will not affect the two Stock Connect share trading schemes, that link the Hong Kong stock market with their equivalents in Shanghai and Shenzhen, according to Hong Kong Exchanges and Clearing (HKEX), or stockbrokers, according to officials.
With just days before the launch of the Shenzhen-Hong Kong Stock Connect on Monday, the central bank issued orders to cap the amounts companies can invest overseas.
Companies cannot now invest more than 30 per cent of their equities stakes.
Analysts said they viewed the move as the government’s latest effort to prevent capital outflow from the mainland, as many companies and individuals continued investing into overseas assets to escape the devaluation of the yuan, which has fallen 7 per cent this year against the US dollar.
“There is no fund outflow in the Stock Connect mechanism because fund flow is insulated within a closed loop,” said a spokesman for HKEX.
Funds from the sale of shares cannot be used in the market where the shares are listed. This ensures the programme is used exclusively for the purposes of investment activities between the two markets and cannot be used for other purposes
“Once Hong Kong and international investors sell their A-shares or mainland investors sell Hong Kong shares, money flows back into their home market accounts.
