China halts foreign purchases of Shenzhen-listed stock as inbound investment surges

[SHANGHAI] Chinese market regulators have blocked foreign purchases of shares in a Shenzhen-listed stock through the Hong Kong connect gateway as offshore ownership of the firm neared the 30 per cent cap, their first such suspension of cross-border stock trade.

The Hong Kong stock exchange said in a statement on Tuesday it has halted buy orders from overseas investors in Han's Laser Technology under the Shenzhen-Hong Kong Stock Connect, although it would continue to take sell orders.

According to the Shenzhen Stock Exchange's website, the proportion of Han's Laser Technology shares held by overseas shareholders reached 28.38 per cent on Tuesday. It did not name who the foreign buyers were.

The suspension is the first due to foreign ownership restrictions under the connect scheme linking Hong Kong and mainland bourses.

It also comes amid a surge in foreign interest in Chinese stocks as Beijing steps up efforts to attract foreign capital to counter the impact of the Sino-US trade war, raising concerns about the prospect of similar disruptions ahead.

"Since China intends to attract more overseas capital into the domestic market, and Chinese A-shares are now being included into many global indexes, shouldn't the government consider relaxing foreign ownership rules?" said Eugenie Shen, managing director of the Asia Securities Industry & Financial Markets Association.

"Overseas asset managers are very worried about this. They don't want to be forced to sell newly-bought shares in a China-listed company."

Under Chinese rules, combined foreign ownership in a China-listed company must not exceed 30 per cent, while the ownership cap for an individual overseas investor is 10 per cent.

Foreign inflows into the country's stock market are expected to double this year from last year to 600 billion yuan (US$89.37 billion), according to China's securities regulator.

While most Chinese firms are overwhelmingly held by onshore investors, the question of foreign stock ownership could become more pressing as global index publishers start including Chinese mid- and small-cap stocks into their global benchmarks.

MSCI said last week it is quadrupling the weighting of Chinese mainland shares in its global benchmarks later this year, with plans to add Chinese mid-cap stocks in November.

Rival index publishers FTSE Russell and S&P Dow Jones Indices will both start adding yuan-denominated Chinese shares to their global benchmarks this year.

Shares in the Han's Laser Technology, which makes equipment that uses laser cutting and engraving technology, have risen by close to 40 per cent since the start of the year.

Han's Laser Technology issued a statement on Tuesday saying that the company's production and operations were currently normal and that it had no major information to disclose.

(US$1 = 6.7137 Chinese yuan) 

REUTERS