HKEX CEO Sees Potential for IPO, Bond Connects With Mainland

  • Second link, with Shenzhen, just the start, says Charles Li
  • System for ETFs will be a priority for next year: Li

The Importance of the Shenzhen-Hong Kong Stock Connect

Hong Kong’s second stock-trading connect with the mainland may be followed by links for initial public offerings, bonds and commodities, said Charles Li, chief executive officer of the city’s bourse.

Hong Kong Exchanges & Clearing Ltd. on Monday unveiled a link with Shenzhen two years after the start of the first with Shanghai. Li said that the two could be followed by a series of programs that would open up different parts of the financial market.

“The next step is to see whether that secondary market connect can be extended potentially to primary connect,” Li said in an interview with Bloomberg Television. “Beyond equity, we are building a bond connect and a commodity connect.”

Other links between Hong Kong and the mainland may not look exactly like the stock programs, according to Li.

“The word ‘connect’ in different asset classes can mean slightly different things,” he said. “Some of them can mean cross-listings, some mean developing benchmarks, others mean mutual recognition.”

MSCI Boost

Li said the second link should boost China’s case for inclusion in MSCI Inc.’s global benchmarks. The index compiler declined to add mainland-listed shares in June.

“The fact you have a huge market like Shenzhen that is not available until today, now you remove one more big block of the few blocks that are still in the way,” he said.

The Shenzhen Composite Index fell 0.8 percent on Monday. Investors purchased about 2.71 billion yuan ($393 million) of Shenzhen equities through the link, or 21 percent of the daily quota.

The Shenzhen link comes more than two years after the launch of a similar program between Shanghai and Hong Kong. Foreign investors have access to about 880 Shenzhen stocks via the link while Chinese investors can for the first time buy some smaller companies listed in Hong Kong. 

Li said at an earlier media event that a priority for next year will be to work on a system for buying and selling exchange-traded funds between exchanges. ETFs will give Chinese investors more breadth to invest internationally and in different asset classes, he said, and will help Hong Kong establish its goal as a wealth management center for outbound Chinese wealth.

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