April 11, 2014 / 3:59 AM / 4 years ago

UPDATE 1-HKEx shares surge 10 pct on cross-border investment proposal

* China’s securities regulator to allow mainland investment in HK stocks

* Analysts raise recommendation on HKEx to “buy”

* HKEx daily average turnover could rise as much as 19 pct -BNP (Adds details of expected turnover increase, analyst reaction)

HONG KONG, April 11 (Reuters) - Hong Kong Exchanges and Clearing Ltd shares rose 10 percent on Friday as investors welcomed China’s announcement that it would allow cross-border share trading between Hong Kong and Shanghai.

HKEx shares were suspended on Thursday for the second time this month, as media reports fuelled speculation that more progress had been made on cross-border exchange cooperation than market participants had previously thought.

On Thursday, China’s securities regulator said it would allow mainland investors to trade shares in designated companies listed in Hong Kong, and at the same time let Hong Kong investors buy shares in Shanghai-listed firms.

Analysts from firms including Mizuho Securities Asia and BNP Paribas subsequently upgraded their research recommendations on HKEx to “buy” on expectation of increased trading revenue.

Cooperation could boost trading volumes in Hong Kong, although HKEx stressed in a statement on Thursday that it has not yet reached agreement with mainland counterparts on how cross-border trading would work.

If mainland investors take up the daily quota of 10.5 billion yuan of Hong Kong shares allowed under proposals from China’s regulator, that could boost average daily turnover on HKEx by 19 percent, according to a research note from BNP Paribas.

The announcement came as a welcome boost for HKEx. The bourse faces challenges including a dwindling number of new listings from Chinese companies, and rising costs from its 2012 acquisition of the London Metals Exchange.

Confirmation of an agreement with mainland exchanges on cross-border trading would be a vindication for Chief Executive Charles Li, who has made greater ties with China the centrepiece of his strategy for HKEx. (Reporting by Lawrence White; Editing by Edwina Gibbs and Christopher Cushing)

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