Euphoria over Shanghai-HK stock link fades

SHANGHAI — After the feverish excitement leading up to the launch of the Shanghai-Hong Kong stock exchange link on Monday, buying interest in both markets fizzled out by the end of the first week of cross-border trading, as institutional investors remained on the sidelines despite the landmark opening of China’s 26 trillion yuan (S$5.5 trillion) bourse.

About 76 per cent of the exchange link’s quotas were left unfilled during the first week of trading, with analysts saying it may take months for the cross-border flows to accelerate.

Investors used 28.3 billion yuan of the 117.5 billion yuan combined quota available in Shanghai and Hong Kong from the Nov 17 debut through yesterday. They filled about 39 per cent of the limit for Shanghai shares and only 6.1 per cent for Hong Kong shares, Bloomberg data showed.

The lack of demand for the Shanghai-listed shares caught industry experts by surprise, as the debut marks one of China’s biggest steps towards opening up its capital account, expanding access to the 24-year-old market beyond a very small group of foreign institutional money managers.

“Transaction volume is substantially lower than what many people have thought. Once we get to an acceleration phase, it will pick up very quickly. We are just not there yet,” said Mr Hao Hong, managing director for research at Bocom International Holdings in Hong Kong.

Analysts cited prevailing high share prices and untested trading rules as some of the reasons for the disappointing volumes. The Shanghai Composite Index has surged 18 per cent through last week since the link was announced in April.

Mirae Asset Global Investments predicts it may take two months for more money managers to participate as they beef up trading and compliance systems.

“I don’t think institutions are participating. We are also struggling with operating issues, putting things in place. As people get comfort from the fact that there are no teething operational issues, then it becomes an on-tap window to buy good companies in China,” said Mr Rahul Chadha, co-chief investment officer at Mirae Asset Global.

The Shanghai-Hong Kong Stock Connect allows any global investor with an account at a participating Hong Kong brokerage to buy a selection of Shanghai shares, with the daily quota set at 13 billion yuan. Mainland traders with at least 500,000 yuan in their accounts can purchase as much as 10.5 billion yuan of Hong Kong shares daily.

Besides the daily limits, the quota system caps aggregate net purchases at 300 billion yuan in Shanghai and 250 billion yuan in Hong Kong, allowing the Chinese authorities to retain some control over cross-border money flows as they broaden access to the world’s biggest emerging market. AGENCIES