Individual Investors Swamp Shanghai Link, Hong Kong Brokers Say

Demand from individual investors pushed Shanghai stock-buying to the maximum allowed through the Hong Kong exchange link, according to brokers making today’s debut trades.

Individuals bought mainland stocks from China Merchants Bank Co. to drugmaker Guangzhou Baiyunshan Pharmaceutical Holdings Co. and manufacturer Fuyao Group Glass Industry Co., while most fund managers stayed on the sidelines, said First Shanghai Financial Holding Ltd. Trading was dominated by individual investors, hedge funds and asset managers buying on their own behalf rather than for clients, according to research firm Z-Ben Advisors. Buyers purchased the maximum 13 billion yuan ($2.1 billion) of Shanghai shares by 1:57 p.m. in the city, triggering a halt in buy orders for the rest of the day.

The program went live today, allowing investors a net 23.5 billion yuan of daily cross-border purchases. More than 80 percent of the Hong Kong quota went unfilled. Anyone with an account at a participating brokerage in Hong Kong can buy mainland shares, with institutional investors also having access to China’s $4.2 trillion stock market through Qualified Foreign Institutional Investor and Renminbi Qualified Foreign Institutional Investor licenses.

“Most of the orders came from individuals instead of corporates,” said Eliot Li, director of corporate development, sales and marketing at First Shanghai. “Many corporate clients were already using QFII or RQFII quota to acquire A-shares before the launch of this program. So maybe at this moment they’re just observing how the program goes.”

Shares on Shanghai’s SSE 180 Index and SSE 380 Index can be bought through the link, as well as dual-listed equities. Daqin Railway Co. surged 6.2 percent today to the highest close since April 2010, and saw the biggest increase in volume relative to its 100-day average on the SSE180, according to data compiled by Bloomberg.

Smooth Trading

Trading ran smoothly, brokers said. Some institutional investors are still preparing to start using the program, according to Pictet Asset Management Ltd.

“Many institutional investors are not ready, and the demand side may not be as positive as regulators want,” said Pauline Dan, the Hong Kong-based head of greater China equities at Pictet Asset Management. “There will be definitely some operational issues people haven’t thought of, and this will take time to smooth down.”

Some asset managers may monitor the market impact of the first sales of Shanghai stocks through the link before using it, Z-Ben Advisors wrote in an e-mailed note. Because investors can only offload shares through the connect that they purchased through it, and Chinese authorities don’t allow day-trading, today’s Shanghai transactions consisted of buy orders only.

First Trades

The Shanghai Composite Index slipped 0.2 percent, while the Hang Seng Index of Hong Kong shares slumped 1.2 percent. 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.

Most clients seeking to buy through the link were individual investors, said Chan Kai Fung, chief executive officer of Bright Smart Securities & Commodities Group Ltd. in Hong Kong, who said there were no trading hiccups.

“Most trading is from individuals and medium-sized funds,” said Michael Ye, director of investment sales division at Chief Securities Ltd. “Institutional investors are cautious. Within one month when they’ve seen a clear picture of the connect, some big funds may come in -- I don’t think they are going to wait too long.”

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