Hong Kong stock connect programme expansion to lure overseas firms

Hong Kong's ability to attract more international listings to its stock exchange will get a boost with the planned expansion of its cross-border trading programme with China that will allow investors from the mainland to buy and sell shares in foreign firms.

The China Securities Regulatory Commission will push for inclusion of more such companies in the Stock Connect programme, vice chairman Fang Xinghai said at a forum in Beijing on Friday (Sep 2), without specifying the timing for the rules change.

While the Hong Kong exchange does have some international listings - including Prada, L'Occitane International and Samsonite International - mainland Chinese can't trade in them. That's one reason activity in those companies is tepid, with daily turnover of Prada averaging just HK$19.5 million (S$3.5 million) the past month, according to data compiled by Bloomberg.

The inclusion would "attract some foreign IPO demand", Morgan Stanley analysts including Richard Xu wrote in a recent note. The impact would probably take some time once a firm date is set, "since mainland enterprises currently account for about 80 per cent of Hong Kong's total market cap", they said.

First introduced in 2014, the trading links between the mainland and Hong Kong have become a major conduit for global investors to gain mainland exposure. Northbound trading made up 5.3 per cent of China's total stock turnover in the first half of 2022, while southbound contributed to 12 per cent of Hong Kong's turnover, according to official data.

"Many foreign companies in Hong Kong have relatively weak liquidity, and there's not much interest from local funds," said Fu Gang, a fund manager with Shanghai RiverEast Asset Management Advisory. "In the future, I hope to see the inclusion of more local mid- and small-caps with good prospects and attractive valuations."

Still, shares of Hong Kong Exchanges & Clearing fell to the lowest since June 2020 on Monday, extending their recent weakness, despite the expectations that more US-listed Chinese companies will choose to list in the city.

This "represents an exciting opportunity for companies looking to tap the massive regional liquidity pool through Stock Connect via a Hong Kong listing", an exchange spokesperson said in an emailed statement. BLOOMBERG

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