MARKET players here will be closely watching the new trading link between Hong Kong and Shanghai when it goes online next week, with no consensus on how the tie-up between the two Greater China exchanges will affect their South-east Asian rival.
Pessimists say the new link could draw liquidity and potential listings away from Singapore. Half glass-full observers say Singapore's value as a regional financial hub with niche strengths and a popular China-linked futures contract will remain resilient.
If there is one agreement in the industry, it is that Shanghai-Hong Kong Stock Connect, as the link is called, will give a boost to the two markets that it marries.
The tie-up will allow investors on both ends to trade directly in certain shares of the other exchange, although the improved access will mostly benefit the 568 Shanghai-listed stocks that were previously stuck behind capital controls but are now approved for trading via the link.
Investors who wanted to trade Shanghai A shares previously had to either get their hands on quotas directly or receive sub-allocations from their brokers. But with demand outstripping the quotas, many funds, not to mention retail investors, could not access the A shares market.
APS Asset Management chief investment officer Wong Kok Hoi said: "When the Shanghai-Hong Kong Stock Connect goes live next week, foreign investors without their own quota can access China A shares as well, so I can confidently predict that fund flows into China A shares will increase significantly in the years to come."
Lumiere Capital co-founder Wong Yu Liang said his firm, which invests in the region, did not use the quota system because it was too expensive, and was using Hong Kong as a proxy. "It's going to be a positive thing for both markets," he said.
David Logerais, head of Asian trading at Amundi Asset Management, said his firm and its clients will use the new link when it is up, given the flexibility from licence quotas.
He noted that the link will make the market more efficient, reducing the traditional discount that Shanghai-listed shares used to have compared to Hong Kong-listed scrip. Indices may also drive demand.
"By opening up its domestic market to foreign investors, China calls for a revision of the weight of Chinese listed companies in major equity indexes," he said.
A number of analysts said the link would put pressure on the Singapore Exchange (SGX), although most of them thought that the impact may not be that pronounced.
CIMB head of research Kenneth Ng said the through train will improve valuations on the two exchanges, making them more attractive to Chinese stock offerings. "It will put pressure on any market like Singapore," he added. "Having said that, SGX's value proposition has been for companies that are not just trying to be in China, but more regional businesses. They will continue to have a space in a certain niche segment."
One investment banker who declined to be named said Singapore also had "cluster expertise" in sectors such as offshore and marine, shipping, healthcare, water and trusts that will continue to attract industry players, especially those looking for international exposure.
Beyond listings, there is also concern that investors may shift their focus to Hong Kong and Shanghai as those markets become more exciting.But SGX has its competitive exposure hedged with its China A50 index futures, which have been receiving strong interest. One analyst, however, noted that a wave of new A50 trackers have emerged, potentially adding competition to the SGX contracts.
The new trading link is not without its bumps. APS's Mr Wong said capital gains tax policy remains unresolved. How the daily quota of US$2.1 billion is allocated on a first-come, first-served basis will also challenge the infrastructure.
SGX executive vice-president Chew Sutat reckoned that a successful Hong Kong Exchange will benefit SGX as well and that the scenario is not a "zero-sum game". "We believe that as the Hong Kong and Shanghai markets grow, our customers will want to manage more of their exposures to China, and we are ready to help them do so with our derivative products," he said.
OCBC remisier Vincent Khoo said: "It gives investors more avenues for investments in China via Hong Kong, and remisiers can highlight these possibilities to their clients instead of griping about slow business in the Singapore market."