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Charles Li Xiaojia, CEO of Hong Kong Stock Exchange (HKEx), repeatedly expected that expansion of the Southbound Trading of Shanghai-Hong Kong Stock Connect (SH-HK Stock Connect) program would be launched simultaneously with Shenzhen-Hong Kong Stock Connect (SZ-HK Stock Connect) program. As the total quota of the Southbound trading is going to run out, there is increasing expectation on the launch of SZ-HK Stock Connect.
Latest statistics show that as of June 27, the total transaction quota of the Southbound Trading is 250 billion yuan but only 63.6 billion yuan is left with utilization rate reaching 75 percent. If based on its current vitality, the remaining quota might be used up within one month.
The Southbound Trading recently saw active trading and its turnover hit new high in terms of several aspects on last Friday. As of closing hour of June 24, total turnover of the Southbound Trading recorded 8.15 billion Hong Kong dollars, including 7.12 billion Hong Kong dollars in buying. With the undone transaction excluded, the Southbound Trading enjoyed net inflow of 6.1 billion Hong Kong dollars (equivalent to 5.2 billion yuan) on that day.
However, mainland investors’ investment enthusiasm about Hong Kong stocks was not only reflected on June 24 when Hang Seng Index plunged drastically by 2.92 percent. They actively participated in Hong Kong securities market through the Southbound Trading over the past few months.
According to statistics released by HKEx, daily proportion of trading volume of the Southbound Trading among the total trading volume of Hong Kong stocks gradually hiked from about 1.5 percent in early May to currently more than 4 percent. In terms of capital flow, the Southbound Trading has seen net inflow for 41 consecutive trading days since April 25 and the aggregate net inflow registers 64.602 billion Hong Kong dollars (equivalent to about 54.9 billion yuan).
According to the website of HKEx, the remaining quota of the Southbound Trading was 67.6 billion yuan as of closing hour of June 24. Excluding the quota with nearly 4 billion yuan used on June 27, about 63.6 billion yuan was left as of closing hour of yesterday and the utilization rate of total quota was 74.56 percent. If with calculation based no daily trading volume of 3 billion yuan over the past two weeks, the total quota with 250 billion yuan of the Southbound Trading will be used p before the end of July.
According to the piloting scheme for the quota of the SH-HK Stock Connect, for both Northbound Trading and Southbound Trading, the buying orders will be suspended on the next trading day when the balance of the total quota is lower than daily quota. The trading will not be resumed until the balance of the total quota exceeds daily quota. In the meantime, only the quota of buying orders is put under monitoring. Investors can place selling orders at any time regardless of quota. It means that domestic investors will only be allowed to place selling orders in the Southbound Trading channel within one month at the fastest if current active trading of Southbound Trading continues.
Hence, market participant estimated that since the quota of the Southbound Trading will soon run out, the expansion of SH-HK Stock Connect becomes a matter of great urgency.
Charles Li indicated earlier on multiple occasions like the wine party for the first anniversary of the SH-HK Stock Connect that the SH-HK Stock Connect will be expanded when the SZ-HK Stock Connect is launched. The investment quota might be adjusted and more stocks might be included. In addition, some technical details will be improved. The SH-HK Stock Connect might not be expanded alone but go together with the launch of the SZ-HK Stock Connect.
The aforesaid market participant indicated that the arrangement by the regulators and the recent performance of the Southbound Trading show that the rising expectation on the launch of the SZ-HK Stock Connect might have contributed to the active trading of the Southbound Trading by capitals in the mainland.
Theme stocks related to the launch of the SZ-HK Stock Connect have been speculated for multiple times in Hong Kong stock market since April. The announcement by HKEx on June 21 even pushed the expectation on the launch of SZ-HK Stock Connect to a new high. As announced by HKEx on June 21, to complement the interface specifications of the China Stock Connect System and the information package that will be required for Northbound Trading under the proposed SZ-HK Stock Connect published on the HKEX’s website, the corresponding interface specifications for the HKEX Orion Market Data Platform – Securities Market and Index Datafeed Products (OMD-C) (version 1.15) and OMD-C Mainland Market Data Hub (MMDH) (version 1.14) (“OMD-C Interface Specifications”) are enclosed for your perusal. Market participants can start end-to-end test from June 27. But the HKEx emphasized that “as at today’s date, no regulatory announcements or approvals have been made regarding the implementation of Shenzhen-Hong Kong Stock Connect, and Data Vendors and End Users should not regard this letter as an indication of imminent announcement by the relevant authorities”. Theme stocks related to Shenzhen-Hong Kong Stock Connect attract great attention from the market again on June 22.
(APD/XH FINANCE)
