Stock Connect, the landmark mutual market access program linking equity markets in the Hong Kong Special Administrative Region and the Chinese mainland, marked its fifth anniversary Sunday amid record levels of two-way capital flows.
Since its launch, Stock Connect has seen sustained volume growth of both northbound (to the mainland) and southbound (to Hong Kong) trading to meet rising global investor demand, data from Hong Kong Exchanges and Clearing Limited (HKEX) showed.
As of Oct. 31, the total cumulative northbound trading turnover on Stock Connect was 17.41 trillion yuan (about US$2.88 trillion), bringing net capital inflows of 860 billion yuan into the A-share market.
Hong Kong and international investors held a total of 1.22 trillion yuan worth of shares listed on the Shanghai and Shenzhen exchanges at the end of October, compared with 86.5 billion yuan at the end of 2014, shortly after the launch of Stock Connect.
Meanwhile, total cumulative southbound trading turnover was 8.75 trillion HK dollars (about US$1.12 trillion), bringing net capital inflows of 987 billion HK dollars into the Hong Kong market. Mainland investors held 999.5 billion HK dollars worth of Hong Kong-listed shares through Stock Connect as of the end of October, up from 13.1 billion HK dollars at the end of 2014.
Since Stock Connect’s launch five years ago, it has continued to gain momentum as the world’s most effective mutual market access program, said HKEX Chief Executive Charles Li.
Not only does this ground-breaking platform offer mainland investors with many asset diversification options, but it also gives international investors unparalleled access to mainland’s equity markets in an efficient, reliable and convenient way, he said.
Shanghai-Hong Kong Stock Connect launched on Nov. 17, 2014, while Shenzhen-Hong Kong Stock Connect launched two years later on Dec. 5, 2016, giving the mainland and international investors in Hong Kong direct access to each other’s market from their home market.
Stock Connect also helped pave the way for the launch of Bond Connect in 2017.
Over the past few years, the mechanism has improved with the introduction of Special Segregated Accounts to its clearing system, as well as adding Real-time Delivery versus Payment for settling northbound transactions. Other refinements include removal of the aggregate quota, increased daily quota, and the launch of the investor identification model for northbound trading.
In addition, following the consensus reached in August between HKEX and the Shanghai and Shenzhen stock exchanges on the criteria for inclusion of Hong Kong-listed companies with weighted voting rights (WVR) in Stock Connect, the first eligible WVR companies were successfully included in southbound trading on Oct. 28, 2019.
The WVR structure, enabling the company to benefit from the continuing vision and leadership of the WVR beneficiaries, could expand the variety of stocks in the Hong Kong market and provide better service to new economy enterprises, said Cheng Shi, chief economist of ICBC International.
Chinese e-commerce giant Alibaba Group Holding Ltd. last Friday confirmed plans to list in Hong Kong. It will become another Hong Kong-listed company that has weighted voting rights structures, following smartphone maker Xiaomi and group buying website Meituan Dianping.
HKEX announced Wednesday Alibaba will debut on Nov. 26 and the bourse will offer investors more options on Alibaba shares on the debut date, including Alibaba Futures and Options.
Stock Connect will attract more international and mainland enterprises to list in Hong Kong, Cheng said.
Stock Connect is a key measure for the opening-up of the capital market on the mainland, also a key link in RMB internationalization, said Hu Wenzhou, chief strategist of Bank of China International.
The mechanism can also further support Hong Kong in developing into an offshore RMB business center and consolidate Hong Kong’s role in the global capital market, Hu said.