Mixed investor reactions to Shanghai-HK stock link

BEIJING - The launch of the Shanghai-Hong Kong Stock Connect pilot program on Monday did not boost prices, with the Shanghai bourse trading in low territory.

During Tuesday's morning trading session, the Shanghai Composite Index fell 0.41 percent to close at 2,463.76.

The two-way flow of investment capital was disproportionate amid mixed reactions.

By 2 pm Monday, the daily trade quota for Hong Kong-based investors had hit its limit, yet only 16.8 percent of the quota set for mainland investors was used by the end of the whole day's trading.

However, analysts were unconcerned by the disparity.

"We expected northbound trading to far exceed southbound trading," said Chen Changhua, head of Credit Suisse China research department.

Chen said that the global stock equity fund was around $20 trillion.

"If we presume 3 percent of it was invested in China, it will equal $600 billion. However, cross-border investment toward the mainland equity market through the qualified foreign institutional investor (QFII) is less than $50 billion currently. There's a huge demand out there," Chen said.

Previously, cross-border investment in the the mainland equity market was only allowed under a series of projects including qualified domestic institutional investor (QDII), QFII and RQFII.

Chen said that the global investors' capital, including their investment through QFII, RQFII as well as their investment on overseas-listed Chinese stocks are almost 28 times the value of QDII made by Chinese investors.

Li Xiaojia, executive director of Hong Kong Exchanges and Clearing Ltd, said mainland investors were cautious because they were not familiar with overseas capital markets and the operating rules in the Hong Kong stock market.

Under the connect program, mainland investors with over 500,000 yuan in their brokerage accounts are eligible to trade in Hong Kong while anyone with a Hong Kong brokerage account may trade shares on the Shanghai bourse, according to the trading rules of the program.

Li said that northbound investment, made mostly by institutional investors, mainly targeted blue chips.

"However, the worst scenario has not occurred. Our previous worries were that there would be no trading at all, or an overly crazy situation. Investors have stayed calm and clear-headed from what we've seen," Li said.

The stock connect initiative, which took more than seven months careful planning, has been seen as a move toward a more open capital market in the Chinese mainland.

From Nov 17, Hong Kong-based investors are able to buy shares in 568 Shanghai-listed companies while buyers from the mainland will have access to 266 Hong Kong-listed stocks.

Each trading day, mainland investors are allowed to trade 10.5 billion yuan in Hong Kong, with Hong Kong investors operating on a 13 billion yuan limit in Shanghai.

The Shanghai Composite Index has risen about 18 percent since China's central government announced the connect plan in April.

Related stories:

Prudence as historic Shanghai-HK stock link opens

Stock Connect unites HK, Shanghai

Cross-border share trade 'to boost offshore yuan'

Money flows to mainland as Shanghai-HK stock link opens