'Through trains' going far and near

Enriching A-share products

Meanwhile, offering more A-share-related financial products can spur the growth of the Hong Kong market's interconnection product ecosystem and provide global investors with more abundant choices for those seeking investment opportunities on the mainland.

In December, HKEX clinched an agreement with the Shanghai Stock Exchange (SSE), the Shenzhen Stock Exchange (SZSE) and China Securities Depository and Clearing Corp (CSDC) on the inclusion arrangements for eligible exchange-traded funds in the Stock Connect programs.

The inclusion of ETFs will provide mainland and institutional investors with more options by broadening the existing product ecosystem of the Stock Connect programs, and support the continued development of the Hong Kong and mainland ETF markets by expanding the investor base.

HKEX, SSE, SZSE and CSDC will work closely on the details of inclusion, including business and technical preparations, such as amendments to related rules. It is estimated that the preparation work will take about six months to complete.

Before the inclusion of ETFs in the Stock Connect programs, there were three new ETFs listed in the Hong Kong Stock Exchange in 2021. They track the MSCI China A50 Connectivity Index, which covers the 50 largest stocks among major A-shares that are tradable through the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect, and includes at least two stocks in each industry to fully reflect economic conditions on the mainland.

Funds related to the Chinese economy in Hong Kong's ETF market have continued to grow, covering a wider range. As of November, the total asset management value of mainland-focused ETFs accounted for about 25 percent of Hong Kong's ETF market.

Derivative products relating to the A-share index have also emerged. In October, the HKEX launched its first A-share futures product — MSCI China A50 Connectivity Index Futures — which provides investors a financial tool to manage their investment risks in A-shares effectively. This can maintain Hong Kong's leading position as an Asian derivatives hub, further advancing the city's status as an international risk management center.

In the first month after the launch of the A-share index futures, the nominal value of open positions had exceeded $2 billion, and the average daily trading volume in November reached 11,927 contracts. HKEX CEO Nicolas Aguzin said the bourse operator has been expanding its uniqueness as a capital-raising center, making Hong Kong a preferred risk management center in Asia, and growing HKEX's offshore A-share ecosystem.

Listing regime reform continues

The listing regime reform is also crucial in cementing the Stock Connect programs by increasing the number of Hong Kong shares that can be traded through northbound trade in the future.

In November, HKEX announced the outcome of proposals to enhance and streamline the listing regime for overseas issuers, It also expanded its secondary listing regime to welcome overseas-listed Chinese companies in traditional sectors to Hong Kong's markets; and started permitting eligible issuers a dual-primary listing while keeping their weighted voting rights or variable interest entity structures. The changes took effect this month.

HKEX also announced new rules to create a listing regime for special purpose acquisition companies (SPACs) that will also take effect this month. The introduction of a Hong Kong SPAC-listing framework will be another attractive listing route for new and innovative companies to seek initial public offerings in the SAR, and will increase the investment universe for mainland investors.

"We welcome improvements to the listing regime for overseas companies and the new listing regime for SPAC, as they will help expand and diversify the portfolio of issuers and investment products in Hong Kong. They will further elevate Hong Kong's status as a prominent mutual market in Asia," said Dick Kay Man-wo, capital market services group's offering service leader at Deloitte China.

Edward Au Chun-hing, Deloitte China Southern Region managing partner, said: "The initial SPAC regime of only allowing the participation of professional investors is the starting point for Hong Kong's development into a multitier platform that will open to greater varieties of listing structures and offerings in the future."

Looking ahead, PwC expects that the recent announcement of the new SPAC listing regime, the new economy and US-listed Chinese enterprises, the listing of biotech companies, as well as environmental, social and corporate governance (ESG)-related companies will drive the growth of the Hong Kong listing market.

"Listing regulation reforms over the past 10 years have successfully diversified Hong Kong's IPO market. We believe these reforms could create further opportunities to strengthen Hong Kong as the best financial center in the region. Hong Kong's bourse is agile and continues to evolve by embracing new models," PwC Hong Kong Entrepreneur Group Leader Benson Wong Wai-bong said.

At the start of last year, mainland and Hong Kong financial regulators allowed mainland technology companies and pre-revenue biotech firms to be included in southbound trading of the Stock Connect programs after they have fulfilled certain conditions. By November, 45 such companies had been included as eligible securities under the two Stock Connect programs.

This followed a consensus reached by HKEX and the Shanghai and Shenzhen stock exchanges, allowing eligible A-shares listed on Shanghai's Science and Technology Innovation Board (STAR Market), and their corresponding H-shares to be included in the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connects as of February 2021.