Connect expansion to lift capital markets

The planned expansion of the Hong Kong Special Administrative Region's stock trading links with the Chinese mainland will raise liquidity in the city's capital pool while further boosting national efforts to open up its financial markets, financial pundits said.

Chinese mainland traders will be able to buy and sell shares of foreign firms with primary listings in Hong Kong under the program.

Securities regulators in Hong Kong and on the Chinese mainland announced on Monday that they agreed in principle to expand the scope of stocks eligible under the city's two-way Stock Connect with the Shenzhen and Shanghai bourses.

The move is aimed to "deepen mutual stock market access between the mainland and Hong Kong and promote development of both capital markets," according to a joint announcement by the China Securities Regulatory Commission and the Hong Kong Securities and Futures Commission.

Under the new regulations, Stock Connect northbound trading — which allows offshore investors in Hong Kong to trade A shares listed on the Shanghai and Shenzhen exchanges — will include stocks with a market capitalization of 5 billion yuan ($716.7 million) or above that also meet certain liquidity criteria.

Stocks of enterprises that have issued both A shares and Hong Kong-traded H shares will also be added to the program, according to the announcement.

In addition, the scope of stocks available through the southbound link will be broadened to overseas companies which are constituents of the Hang Seng Composite large-cap and mid-cap indexes, as well as the small-cap index, with a market capitalization of at least HK$5 billion ($642.3 million).

Hong Kong Financial Secretary Paul Chan Mo-po said, "The arrangement to expand mutual access is of strategic meaning to both the future development of Hong Kong's securities market and the higher-quality opening-up of the mainland's securities market."

The access widening under southbound trading can attract quality international companies to list in Hong Kong and enhance the competitiveness of the city's fundraising platform, Chan said.

Laura Cha Shih May-lung, chairwoman of Hong Kong Exchanges and Clearing Ltd, said the expansion of Stock Connect provides mainland investors with more opportunities to invest overseas and enables international investors to enjoy wider access to the mainland markets.

"This latest enhancement to Stock Connect will help boost the healthy development of both mainland and Hong Kong financial markets by bringing new connectivity, liquidity and vibrancy," Cha said.

First Shanghai Securities chief strategist Linus Yip Sheung-chi said the inclusion signals a significant step toward the improvement of the mechanism. "It will help optimize global asset allocation," he said.