Hamon’s Market Update – 10 April 2014

April 14th, 2014, Monday


Hong Kong’s Hang Seng Index and Shanghai Composite rose 1.51% and 1.38% today (in local currency) respectively on allowing cross-border trading between Shanghai and Hong Kong.

The pilot programme was announced in joint statement by Hong Kong and Mainland China regulators today.  With a yearly quota, investors will be able to trade up to 250 billion yuan (USD 40.3 bn) of Hong Kong-listed stocks through the Shanghai exchange, and 300 billion yuan (USD 48.3 bn) of Shanghai listed Chinese shares via Hong Kong.

With this new scheme, the main beneficiaries would be the mainland brokers as mainland investors would get a quota to trade Hong Kong stocks through a mainland broker on the Shanghai Stock Exchange while a similar arrangement in Hong Kong, allowing investors, also subject to a quota, who want to trade A shares to get a local broker to place orders through Hong Kong to its Shanghai counterpart.

We believe this is a significant step towards China’s capital market opening and positive for the Mainland equity markets as international investors would have further access to it. Non-bank Financials, including Mainland brokers, have been one of our key themes for the past 12 months. We continue to hold a positive stance towards the sector, as China further opens up its capital market. Macau gaming and China leading internet/ technology stocks listed in Hong Kong will also attract significant interest from mainland investors for their uniqueness and we are overweight in both areas.

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