April 24, 2014 / 10:01 AM / in 4 years

Hong Kong-Shanghai equity link could act as commodity blueprint -HKEx CEO

HONG KONG, April 24 (Reuters) - A model that allows Hong Kong and Shanghai investors to trade equities on each other’s bourses could eventually extend to commodity futures, the chief executive of Hong Kong’s exchange said on Thursday.

Regulators in China and Hong Kong surprised market participants earlier this month by unveiling a cross-border stock investment scheme, as part of steps to capitalise on the internationalisation of the Chinese currency.

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.

“(Shanghai-Hong Kong Stock Connect) is a major breakthrough in China’s capital market and ultimately is the beginning of the end of ... the renminbi’s lack of convertibility,” said Hong Kong Exchanges and Clearing Ltd chief Charles Li.

“We could potentially replicate that model in commodities,” he said at a conference in Hong Kong.

The equities scheme, which is planned to launch around October, allows Hong Kong investors to trade selected A-shares in Shanghai, while allowing mainland investors to trade most Hong Kong shares in China, using yuan.

But Li said that a similar scheme for commodity futures markets would prove more challenging because there were fewer products, and that contracts were typically designed for risk management rather than purely as investment tools.

“There are a lot of issues to work out if we are going to do something similar ... but I am sure we are going to work very hard on it,” said Li. (Editing by Joseph Radford)

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