Exclusive | Hong Kong is the key to unlock China’s stocks, where global funds may in time own 25 per cent of market value, Charles Li says

Name: SCMP
Telephone: +852-2680-8888

International investors owned 1.95 trillion yuan of A-shares in Shanghai and Shenzhen via Stock Connect, or 2.8 per cent of the capitalisation of the two mainland markets at the end of July

Mainland Chinese investors owned HK$1.54 trillion of Hong Kong-listed shares at the end of July, or 3.8 per cent of the total, according to HKEX data

Reading Time:3 minutes

Why you can trust SCMP

Enoch YiuandAlison Tudor-Ackroyd

Published: 8:15pm, 28 Aug 2020Updated: 9:43am, 29 Aug 2020

Global investors may eventually hold as much as one fifth, or even up to a quarter, of China’s stock market value over time, and Hong Kong will be the vital link for that access, said the architect of the cross-border investment channel known as the Stock Connect.

The daily amount of international capital investing in the Shanghai and Shenzhen markets via Hong Kong – known as northbound capital in Connect parlance – jumped 69 per cent in the first half to a record 74.3 billion yuan (US$10.83 billion) year on year, fuelling a rally that drove the Shanghai Composite Index’s gain this year to 11.6 per cent as the world’s second biggest winner. First-half southbound capital by Chinese investors tapping Hong Kong-listed shares rose 86 per cent to HK$20.7 billion every day.

“The Stock Connect has become extraordinarily important, [where] we‘re smashing records every quarter,” said Charles Li Xiaojia, chief executive of Hong Kong Exchanges and Clearing Limited (HKEX), the operator of the city’s bourse, during a webinar by South China Morning Post. “I think there is still room to grow for Connect to live up to its potential.”

The potential growth, from the current status where global capital via Hong Kong makes up low single digits percentage of China’s stock market under the scheme, could translate to further upside for the operator of Asia’s third-largest stock market. HKEX, whose shares are traded on the Hong Kong exchange, last week reported a record first-half and second-quarter profit, boosted by rising market turnover – due in no small part to the Connect – and a flood of Chinese technology start-ups seeking to raise capital.

Charles Li Xiaojia, chief executive of Hong Kong Exchanges and Clearing Limited (HKEX) speaking after officiating several IPO listings on the exchange on 16 July 2019. As many as 24 companies raised money in Hong Kong in July alone. Photo: Nora Tam

The Connect scheme involved the collaboration between Hong Kong, with the exchange operators in Shanghai and Shenzhen to allow investors to access each other’s stocks, while keeping China’s capital controls intact.

Since the Shanghai-Hong Kong Connect was launched in November 2014, followed by the Shenzhen-Hong Kong Connect in 2016, a total of 30.64 trillion yuan of global capital had flowed into China’s A-share market, which would otherwise be off limits to overseas investors. Mainland Chinese retail and institutional investors had poured HK$12.2 trillion of money into such Hong Kong-listed shares as HSBC and Tencent Holdings, according to exchange data.