* Investors optimistic scheme to fare better than past
* Turnover set to rise on stock exchanges
* Gap between prices of A- and H-shares to dwindle
By Saikat Chatterjee and Michelle Chen
HONG KONG, April 11 A move to allow investors in
Hong Kong and Shanghai to trade in each other's equity markets
has a real chance of success thanks to the yuan's increasing
global role, and throws a lifeline to stock exchanges and
brokerages in the two financial capitals.
Regulators in China and Hong Kong surprised market
participants on Thursday by unveiling a cross-border stock
investment scheme, banking on the success of the promotion of
the internationalisation of the Chinese currency since 2010.
The initiative, known as the Shanghai-Hong Kong Stock
Connect, is the latest in a series of financial sector reforms
that regulators have taken this year, such as widening the
yuan's trading band and increasing quotas for investors.
"Preparation this time is sufficient and the market
condition is mature, which will likely lead to a success of the
scheme unlike the last time," said Ben Zhang, managing director
at Haitong International, an asset management company in Hong
"This scheme is also in line with the whole renminbi
China said it would allow cross-border stock investment
between Shanghai and Hong Kong limited to an overall quota of
550 billion yuan ($88 billion) and the preparation would take
about six months.
Investors are far more optimistic about the success of the
scheme this time around after a failed attempt in 2007, when
regulators had to bring down the curtain quickly on a pilot
programme amid concerns over frothy market valuations.
The optimism is due to the big strides taken in seeding an
offshore yuan market in Hong Kong and establishing strong
infrastructure links with the mainland in recent years.
The new plan is also far less restrictive than the current
option to buy mainland equities via quotas, as the latter
requires an investment track record and is only available to
institutional players and requires regulatory approval.
Under a foreign currency-denominated quota, investors can
buy $150 billion in domestic assets while under a
yuan-denominated quota, they can buy 270 billion yuan worth.
Both quotas are underutilised due to strict requirements.
Conversely, for mainland investors, the new scheme opens up
an array of investment options as they can now buy Macau-listed
stocks, social-networking giant Tencent Holdings Ltd
and AIA Group Ltd, Asia's No. 3 insurer by market
The move is expected to whittle away at the spread for
dual-listed stocks, with analysts expecting prices of
mainland-listed A-shares and Hong Kong-listed H-shares to move
more closely together in the near term.
Trading activity is set to remain hectic in counters with a
significant gap between these markets, with arbitrage funds
sniffing at opportunities to exploit the gaps.
The quotas are sizeable compared with daily turnover on the
Hong Kong stock exchange, which has seen dwindling revenues from
stock broking in recent years, and for mainland indexes, which
are trading at some of their lowest valuations in a decade.
Citi analysts estimate the presence of mainland investors in
Hong Kong could bump up daily turnover by more than 10 percent,
representing a boost in revenues for the Hong Kong bourse.
Shares of Hong Kong Exchanges and Clearing Ltd jumped
more than 10 percent on Friday on those hopes.
($1 = 6.2125 Chinese Yuan)
(Editing by Chris Gallagher)