Investors piled into Shanghai shares on the first day of exchange-link trading, buying the maximum amount allowed in a sign of global demand for mainland equities as China opens up its $4.2 trillion market.
International investors purchased 13 billion yuan ($2.1 billion) of Shanghai shares by 1:57 p.m., triggering a halt in buy orders for the rest of the day. Mainland investors used about 1.8 billion yuan of their 10.5 billion yuan quota in Hong Kong. Trading through the link ran smoothly, according to brokerages including First Shanghai Financial Holding Ltd. and Emperor Securities Ltd.
Today’s debut marks one of China’s biggest steps toward opening up its capital account, increasing global use of the yuan and turning Shanghai into an international financial center. The quota system, which caps aggregate net purchases at 300 billion yuan in Shanghai and 250 billion yuan in Hong Kong, allows Chinese authorities to retain some control over cross-border money flows even as they broaden access to the biggest emerging market.
“It’s another step in a very steady deregulating and opening up of the China markets, which in the long run has got to be good for everyone,” Simon Grose-Hodge, a Singapore-based investment strategist at LGT Group, said in a phone interview. “The money flow was as we expected, with much more interest from investors getting into China rather than China getting into Hong Kong. There have been no errors as far as we can tell.”
More than two stocks on the Shanghai Composite Index rose for each one that fell as the gauge slipped 0.2 percent at the close. The Hang Seng China Enterprises Index of mainland shares traded in Hong Kong dropped 1.9 percent, the biggest decline in five weeks. Inner Mongolia Yili Industrial Group Co. and Tencent Holdings Ltd. were the first companies traded through the program in Shanghai and Hong Kong, respectively, according to Hong Kong Exchanges & Clearing Ltd.
Some 81 percent of brokers surveyed by Bloomberg News on Nov. 14 predicted the quota for Shanghai shares would be used up on the first day. Half of those surveyed forecast the same result for Hong Kong purchases.
The link allows any global investor with a Hong Kong brokerage account to buy a selection of Shanghai shares, expanding access to a 24-year-old market from a small number of foreign institutional money managers. Mainland traders with at least 500,000 yuan in their accounts are eligible to purchase Hong Kong shares through the connect.
Shanghai shares in the SSE 180 Index and SSE 380 Index are eligible, along with constituents of the Hang Seng Composite LargeCap Index and Hang Seng Composite MidCap Index in Hong Kong. Stocks with dual listings are also included.
“This is the primary vehicle for China to take the next step to opening up its capital market to the rest of the world,” Mark Matthews, the Singapore-based head of Asia research at Bank Julius Baer & Co., which oversees about $286 billion, said by phone. “It’s a positive move for the long term.”
Liquor maker Kweichow Moutai Co. and SAIC Motor Corp. each advanced more than 1.8 percent in Shanghai as the connect gives overseas investors access to more mainland consumer companies.
“It looks like overseas investors favor the stocks without Hong Kong listings,” Dai Ming, a money manager at Hengsheng Asset Management Co. in Shanghai, said by phone. “There isn’t much enthusiasm toward Hong Kong.”
Hong Kong Exchanges dropped 4.5 percent, paring gains to 35 percent since Chinese Premier Li Keqiang unveiled plans for the equity link in April, as the quota for mainland investors buying the city’s shares went largely unfilled. Tencent slid 2.1 percent in Hong Kong.
The Shanghai Composite has advanced 17 percent this year amid optimism the exchange link will attract fund inflows. That compares with a 2.1 percent gain in the Hang Seng Index.
“The Stock Connect program is an important step towards China’s integration with the international financial markets,” said James Gorman, the chief executive officer of Morgan Stanley who attended the debut ceremoney at the Shanghai Stock Exchange today. Most buy orders for Shanghai shares through the link are coming from individuals, said Eliot Li, director of corporate development, sales and marketing at First Shanghai. Corporate and institutional investors are observing the link’s debut and may trade through the program in the next few weeks, Li said.
“Trading is going smoothly, said Li. ‘‘In the very beginning, most of the orders are coming from individuals.’’
— With assistance by Shidong Zhang, and Adam Haigh