- Shenzhen link expands Chinese investor access to Hong Kong
- CEO Charles Li says ’long term significance’ is mainland flows
Charles Li, chief executive officer of Hong Kong Exchanges & Clearing Ltd., said he believes the link with Shenzhen will help cement his city’s status as the gateway to China’s multi-trillion dollar investor base.
Li said in an interview with Bloomberg Television that he expects that the flow of money from the mainland will increase after Hong Kong and Chinese regulators on Tuesday announced plans to link the city’s bourse to the Shenzhen Stock Exchange. The initiative would double daily limits for equity purchases from the mainland and will scrap total quotas, which were introduced with the launch of the first link, to the Shanghai exchange, in late 2014.
The long-delayed Shenzhen connect is part of China’s efforts to open its capital markets and increase its global influence. The nation has about $20 trillion deposited in banks, of which about a half will be invested in equities and bonds in the next two decades, Li said.
“The long term significance of the connect is the southbound,” Li told Rishaad Salamat and Haidi Lun. “Hong Kong’s job is to bring the world to Hong Kong, so China can invest in the world at this full stop in Hong Kong.”
Chinese investors bought a net of about 200 billion yuan ($30 billion) of shares in Hong Kong, using more than 80 percent of the aggregate quota, since the Shanghai link was started in November 2014, according data compiled by Bloomberg. The southbound and northbound total limits will be scrapped, yesterday’s announcements said.
“The main thing we see this year is the increased flow of mainland money into the Hong Kong market,” said Erwin Sanft, head of China strategy at Macquarie Group Ltd. in Hong Kong. The announcement of the Shenzhen link “shows that the general fear of capital outflows is much lower” in China.
Li is looking to boost the attractiveness of the city’s stocks after the 30-day average value of shares traded in the city fell to an almost two-year low in June. While the benchmark Hong Kong equity gauge has rebounded back into a bull market after plunging in the wake of China’s 2015 rout, its longer-term performance is poor relative to global peers. The Hang Seng Index has gained 13 percent in the past five years, behind the 37 percent advance by the MSCI All-Country World Index.
The new link will help the city attract foreign companies to list in Hong Kong, Li said, with the aim of pulling in mainland investor money. Seven international companies had initial public offerings on the bourse this year, raising about $1.3 billion, Bloomberg data show.
“Hopefully over the time we will get more international listings, international products and then those products would become much more interesting for the southbound investors,” Li said. “And we will be the primary destination.”