Hong Kong to cash in on dual currency trading
- Trades in local dollar or yuan in city stock market will offer greater choice to those investors seeking to diversify not only in shares but also currencies
It’s finally here. Some of the nation’s most recognisable companies can now be traded in either the yuan or the Hong Kong dollar in the local stock market.
This will be a great boost for the market because international investors looking to diversify not only in stocks but also in currencies may now look forward to a greater choice. That goes hand in hand with the increasing internationalisation of the yuan.
But it will also be attractive to mainland stock punters when the new scheme becomes available through the southbound route of the so-called Stock Connect at a later date. After an unsuccessful start some years ago, legislative reforms and technical improvements have finally made it happen.
The dual-currency stock trade includes mainly big names such as Tencent, Ping An Insurance, AIA and Alibaba, which owns the Post. They are among 24 firms from Hong Kong and the mainland listed in the city. Collectively they account for a combined capitalisation of HK$12 trillion (US$1.5 trillion), or 35 per cent of the total Hong Kong stock market cap.
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The top five companies with the highest turnover so far have been such recognisable brands as China Mobile, Tencent, Ping An, CNOOC and Meituan, the popular online shopping platform. The yuan-share counter model will also eventually expand beyond the current two dozen and is expected to boost turnover by increasing the city’s appeal amid a market downturn.
The scheme comes at a time when demands for the renminbi by foreign and domestic investors are increasing in flows, liquidity and popularity. It will further cement Hong Kong’s long-standing status as a premier offshore renminbi trading hub that offers high liquidity, secure and efficient trade settlement and high product variety.
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As China establishes increasingly closer trade and diplomatic ties with the Gulf states led by Saudi Arabia, the local monetary authority hopes the introduction of the yuan counter will encourage more Middle Eastern companies to accept yuan to settle trades and deep-pocketed investors there to look towards the city favourably.
A confluence of trade, economics and geopolitics drives the acceleration of yuan internationalisation. As a one-of-a-kind investment centre, the city is poised to ride with this irresistible tide.
