Investors send billions to Shanghai as market opens to foreigners

Invest in China: Stock Connect explained
Invest in China: Stock Connect explained

International investors poured money into Chinese stocks on Monday, taking advantage of a new program that links markets in Hong Kong and Shanghai.

Previously, only pre-approved institutional investors could invest in the Chinese market. But now, the Shanghai-Hong Kong Stock Connect allows any investor to buy select Shanghai stocks through the Hong Kong Stock Exchange, and vice versa, with trading in both directions subject to daily trading caps.

International investors buying Chinese stocks reached the daily cap of 13 billion yuan ($2.1 billion) by roughly 2 p.m., according to the Hong Kong Stock Exchange.

Chinese investors buying Hong Kong stocks are far less enthused about the new program, said Michael Liang, chief investment officer of Foundation Asset Management.

That's because many Chinese stocks traded in Hong Kong -- big banks, insurers, oil companies -- are already listed in Shanghai, and available to Chinese investors. Plus, they're often cheaper in Shanghai versus Hong Kong.

"There's no reason to come to Hong Kong for this," Liang said. "But there are some value plays, some growth stories here -- very unique, like Tencent, AIA, Hong Kong Exchange -- which we don't have in China."

Regardless of trading volume, the program is a step in the right direction for opening up China's financial markets, and for making the yuan a global currency, he said. But "people should not expect to make a lot of money, a killing overnight."

Stocks in both cities clocked a muted response: Markets in Hong Kong fell 0.9% on Monday, while stocks in Shanghai swung between gains and losses.

Related: China's stock market finally opens to foreigners. Now what?

The stock connect, first announced in April, was expected to launch in October -- but the launch date was delayed as regulators hashed out final details.

Purchases of Chinese stocks through Hong Kong are subject to a daily trading cap of 13 billion yuan ($2.1 billion) and a total program limit of 300 billion yuan ($48.9 billion); investing in Hong Kong is limited to 10.5 billion yuan ($1.7 billion) a day and 250 billion yuan ($40.8 billion) overall.

Almost 600 companies traded in Shanghai have been approved for the pilot program, and nearly 300 for trading in Hong Kong.

For now, participating investors can only buy and sell shares within the program. Going forward, Liang expects China to consider expanding the list of eligible companies, relaxing the quota, and perhaps rolling out the trading link to other exchanges, such as Shenzhen.

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