Shanghai-Hong Kong Stock Connect a channel for wealth

Huang Yixuan
The new move of funds' inclusion is aimed to expand the variety of traded products and provide more investment opportunities.
Huang Yixuan

The inclusion of exchange-traded funds (ETFs) in Stock Connects linking markets in Shanghai and Shenzhen with Hong Kong will kick off on July 4, marking a new step forward in the major financial program.

The announcement came in a joint statement released on Tuesday by the securities regulators of China's mainland and Hong Kong ahead of July 1, the 25th anniversary of the city's return to China.

The inclusion of ETFs is aimed to expand the variety of traded products and provide more investment opportunities and convenience for domestic and overseas investors, according to regulators.

As a major financial program linking the mainland and Hong Kong markets, the Shanghai-Hong Kong Stock Connect has made considerable strides since its launch on November 17, 2014, along with the Shenzhen-Hong Kong Stock Connect launched two years later in December 2016.

This landmark mutual market access scheme connecting equity markets has given mainland and international investors direct access to each other's market from their home market over recent years.

Data showed that the average daily turnover of the spot stock market of Hong Kong Exchanges and Clearing Limited (HKEX) was HK$15 billion (US$1.91 billion) in 1997, which exploded to HK$166.7 billion in 2021.

Among them, the average daily turnover of Hong Kong Stock Connect under the Shanghai-Hong Kong Stock Connect program reached HK$20.079 billion last year, in spite of the weak global economy amid the pandemic.

To date, southbound trading via Stock Connect with Shanghai – buying of Hong Kong shares by Shanghai investors – has brought HK$1.28 trillion into the Hong Kong market cumulatively.

Mainland investors held HK$2.21 trillion worth of Hong Kong-listed shares through Stock Connect as of June 23, according to data from UBS, up from HK$13.1 billion at the end of 2014.

Notably, the Stock Connect has attracted more international and mainland enterprises to list in Hong Kong, including tech giants Alibaba and Tencent.

It also helped pave the way for the launch of Bond Connect in 2017.

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