China allows investors to trade foreign firms via Hong Kong stock links

HONG KONG – Chinese investors will soon be able to buy and sell shares of international companies with a primary listing on Hong Kong’s stock exchange in a move that may encourage more firms to sell new shares in the city.

Securities regulators in both mainland China and Hong Kong agreed to expand the scope of stocks eligible for inclusion in the city’s trading links with Shanghai and Shenzhen, according to statements including by Hong Kong Exchanges & Clearing Ltd. on Monday. Preparation for the new proposals will take approximately three months, and the official launch date will be announced in due course, according to the HKEx statement. 

Foreign firms will need to have a market capitalisation of at least HK$5 billion to qualify, according to the statement. The planned expansion was highlighted by China Securities Regulatory Commission Vice Chairman Fang Xinghai in September.

Hong Kong has attracted few initial public offerings by non-Chinese companies in the past decade, leading to Chinese firms dominating the local stock exchange. Given the poor performance of the nation’s stocks in recent years, that’s made the Hang Seng Index benchmark a global laggard.

The gauge is the worst performing global benchmark in the past five years, after the Hang Seng China Enterprises Index, with a drop of 33 per cent. MSCI Inc.’s global index has climbed 19% in that time.

Trading is tepid in Hong Kong’s international listings, which include Prada, L’Occitane International and Samsonite International. Daily turnover of Prada has averaged just HK$33 million this year, according to data compiled by Bloomberg.

In addition, the scope of stocks available via the southbound link will be broadened to members of the Hang Seng Composite large-cap and mid-cap indexes, as well as those on the small-cap Index with a market capitalization of at least HK$5 billion, according to the statement. 

Access northbound will be widened to all members on the SSE A Share Index and the SZSE Composite Index with a market capitalization of at least 5 billion yuan, the statement said.

Under the existing rules, investors can trade stocks listed on the SSE 180 Index and SSE 380 Index in Shanghai, as well as any dual-listed shares. Stocks eligible in Shenzhen are those on the SZSE Component Index and the small/mid cap index which have a market capitalization of at least 6 billion yuan. BLOOMBERG

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