Preparations for the impending launch of Shenzhen-Hong Kong stock cross-trading link are well underway. The "through train" program is expected to fuel a new round of trading in equity-related derivatives, and serve as an instrument for hedging risks as well as speculation. Asia News Photo

HKEx chief sees no big risk in market due to quota limits

The Hong Kong Stock Exchange expects to introduce a short selling service for A shares through northbound trading under the Shanghai-Hong Kong Stock Connect program later this month.

The bourse said on Friday it will start testing the service this weekend.

Charles Li Xiaojia, chief executive of Hong Kong Exchange and Clearing Ltd (HKEx), said he expected the short-selling service to be launched in a week or two. "I believe the service will not create big risks in the A-share market because of the quota limitation," he said. "Without such a service, the market mechanism is inadequate."

With the further development of the Shanghai-Hong Kong cross-trading link, the launch of the projected Shenzhen-Hong Kong Stock Connect program is on the horizon.

Li said the experience gained from the Shanghai-Hong Kong program will help the authorities plan and prepare for the new Shenzhen link program.

"The preparation time for the Shenzhen-Hong Kong link will be shortened dramatically, I believe, thanks to the success of the Shanghai link," he said.

The China Securities Regulatory Commission (CSRC) has also pledged support for the Shenzhen-Hong Kong program.

"We hope the two bourses will explore creative channels and areas to deepen cooperation in the financial arena," said Deng Ge, a spokesman for CSRC.

The Hong Kong Investment Funds Association said Hong Kong and Shenzhen have acquired a deeper understanding of various technical issues, such as trade checking and disclosure of interest, affecting the Shanghai-Hong Kong program.

Paul Chan, chief investment officer for Asia ex-Japan at Invesco Ltd, however, expressed reservations over the proposed link with Shenzhen.

"Investors don't seem to be greatly interested in the link program," he said. "The returns on the US ETF (Exchange Traded Fund) may be even higher than what can be gained from investing in the Chinese mainland market through (the northbound trading of) the stock connect program," Chan said.

But, he's more optimistic about the southbound track under the Shanghai-Hong Kong link.

"The H shares' discounts to A shares will not disappear soon, so investments in H shares are likely to increase in 2015," Chan said.

Li also said further links between Hong Kong and the mainland with regard to commodities and exchange rates will be launched in the future.

"Hong Kong stands to benefit much when the mainland opens up its financial markets further," he added.

celia@chinadailyhk.com

(HK Edition 01/10/2015 page8)