HK stock exchange chief highlights the potential of closer cooperation with the mainland equity market

Hong Kong should capitalize on the mutual market framework of the Shanghai-Hong Kong Stock Connect to facilitate more reciprocal trading of equity derivative products, commodities and fixed income products in Hong Kong and on the mainland, Hong Kong Exchanges and Clearing Ltd (HKEx) Chief Executive Charles Li Xiaojia said.

Li predicted that the process of including the A-share index in MSCI index will become clearer after the widely expected launch of the Shenzhen-Hong Kong Stock Connect in the second half of this year.

"The Shanghai-Hong Kong Stock Connect business model is scalable and replicable. The business model is like a chip and can be put into different smartphones," Li said.

Speaking at the media luncheon on Tuesday, Li expected this model can be extended to include reciprocal trading of equity derivative products, commodities and fixed income products by the mainland, Hong Kong and international investors at a later stage.

"We hope that mainland investors can be allowed to buy more types of Hong Kong-listed shares under the Shanghai-Hong Kong Stock Connect program. Currently the daily trading quota is not completely utilized, (but) both the mainland and Hong Kong financial regulators can study whether to increase the trading quota." Li said.

It is reasonable to expect Shenzhen-Hong Kong Stock Connect can be launched in the second half of this year, he said. "When that happens, the progress of A-share index inclusion within the MSCI index will be clearer."

Previously media reports quoted the Shenzhen Stock Exchange (SZSE) Chairman Wu Lijun for saying that HKEx and SZSE have completed the blueprint for cross trading and started the relevant technical system development work of the proposed program.

"With our Shanghai-Hong Kong Stock Connect program, we have a successful mutual market model that is scalable across other market markets and asset classes," Li said. "As HKEx develops its strategic plan for 2016-18, it will continue to look for ways to enhance the competitive advantages of the maintain and Hong Kong," he said.

The future of HKEx, Li said, hinges on leveraging its close cooperation with the mainland.

"The Chinese mainland market is so big, so liquid and so deep so that Hong Kong has to think how to capitalize on the potential opportunities," Li noted.

"In 2004, the combined market capitalization of the Shanghai and Shenzhen stock exchanges was just 3.2 trillion yuan ($512.8 billion). The combined market capitalization skyrocketed to 37 trillion yuan last year with an average daily trading (ADT) of over 303 billion yuan,"Li said. In comparison, "Hong Kong share market capitalization in 2014 was just HK$25 trillion with an ADT of HK$69 billion," Li added.

oswald@chinadailyhk.com

(HK Edition 02/11/2015 page7)