HKEx working with regulators to promote Southbound trading in Shanghai-HK connect

HONG Kong Stock Exchange (HKEx) is working with regulators to fan greater interest among mainland investors to trade Hong Kong stocks via the Shanghai-Hong Kong stock connect.

This includes studying how the door can be flung wider to allow more investors to take part in Southbound trading, given the current restrictions requiring mainland investors to have at least 500,000 yuan (S$106,000) in their account balance in order to participate.

"Whether we are able to lower or eliminate this barrier is something we will work on with our regulators," says the HKEx chief executive Charles Li in his latest blog post on Sunday.

Besides working to ensure more investors can take part, HKEx is also working with the broker community to help promote the scheme, understand Hong Kong better, and get more research going.

"Perhaps we can consider expanding the scheme to smaller stocks initially through index products like exchange-traded funds (ETFs)," Mr Li said.

Trading interest via the stock connect cooled after the first day of launch last Monday, disappointing earlier hopes that this initiative to hook up Hong Kong's stock market to its Shanghai counterpart could be a major booster to both markets.

Mr Li noted that an absence of short-term arbitrage gains and small-cap eligible stocks, and the minimum 500,000 yuan capital requirement are among reasons that have crimped volumes for Southbound trading.

He also pointed out that mainland institutions are not yet permitted to invest offshore. But this issue is being resolved as the Chinese Securities Regulatory Commission (CSRC) is already preparing the approval process.

Notwithstanding the kinks that need to be ironed out, Mr Li said that Shanghai and Hong Kong bourses are on the right path "without a doubt".

"In all of this punditry and early obsession with numbers, we should not lose sight of what the scheme represents," he added. "It's an historic opening of the mainland's market that will grow and get better as China accelerates its strategic goal of reallocating its massive domestic national wealth beyond its own domestic markets."