Hong Kong and mainland China to expand Stock Connect scheme

More than 1,000 Chinese stocks — as well as those of multinational companies — will be included in an expanded scheme that allows investors greater access to mainland shares, while boosting trading liquidity in Hong Kong.

The securities watchdogs in both mainland China and Hong Kong have announced an agreement to expand the scope of eligible stocks under the Stock Connect scheme, linking the Hong Kong bourse with those of Shanghai and Shenzhen.

The northbound trading will include stocks with a market capitalisation of Rmb5bn ($717mn) or above that meet liquidity criteria. Southbound trading expansion will include stocks of primary-listed foreign companies that are constituents of Hang Seng composite indices.

The move will boost the number of mainland stocks eligible for trading via the northbound link to about 2,516, up from the current 1,458, according to data published on Tuesday by mainland brokerage CICC.

About six international companies listed in Hong Kong are likely to be added to the southbound link, the brokerage added. Shares of fashion outlet Prada and beauty brand L’Occitane could be eligible for the list, based on the latest criteria and information from data provider Wind.

“The further expansion of the scope of Stock Connect will give international investors more choice in A-shares [which are listed on either the Shanghai or Shenzhen stock exchanges] and consolidate Hong Kong’s position as a gateway to mainland China,” said Julia Leung, acting chief executive of Hong Kong’s Securities and Futures Commission.

“In particular, the inclusion of foreign companies primary-listed in Hong Kong is of strategic importance to Hong Kong as a leading fundraising platform for international companies.”

The performance of Hong Kong stocks has been tepid this year, with trading dragged down by weak initial public offerings, geopolitical tensions and China’s harsh zero-Covid policies. The benchmark Hang Seng index has recovered since late October, posting a 27 per cent rally last month on hopes of a major reopening of the economy. However, the gauge is still down about 18 per cent year to date.

“Southbound inflows will continue to rise after the scheme expansion,” said Zhang Qi, analyst at Chinese brokerage Haitong Securities, adding that companies which are more familiar to mainland investors and yet inaccessible for trades could perform better than others.

Southbound inflows via the scheme contributed 15.3 per cent of the daily trading volume of Hong Kong shares on Monday, while northbound investors contributed 4.3 per cent of A-share trading, according to Wind.

The Hang Seng index was down 1.9 per cent on Tuesday afternoon trading, while the Shanghai Composite index declined 1.1 per cent.