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Mainland investors cool to investing in HK equities under stock connect
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TODAY’S launch of the stock connect scheme allowing Shanghai and Hong Kong investors to trade on each other’s bourse will be a mostly one-way street, with foreign money pouring into China’s mainland, but little to entice mainland cash southward for now.
Overseas stock exchanges have long been hoping to attract a share of the mainland’s massive personal deposits — worth 50.4 trillion yuan (US$8.2 trillion) in September — but mainland investors have been unmoved.
They showed scant enthusiasm for the Qualified Domestic Institutional Investor program, which lets Chinese citizens buy shares in foreign companies through mutual funds, most of them focused on the United States.
“Despite the upswing in the US (markets), we haven’t seen distinct improvement in demand for QDII products,” said Howhow Zhang, fund analyst at Z-Ben Advisors in Shanghai. Analysts estimate that only 25-35 percent of the available QDII quota has been sold to mainland investors.
Punters cool to stock linkup
Domestic punters appear similarly cool on the connector.
“There are around 3 million retail investors who are eligible for the (stock connect) program, given the minimum asset requirement,” said Lu Wenjie, China equity analyst at UBS in Shanghai, citing official data from the exchanges.
“So far only 2 percent of them have signed up.” The percentage of those with the intention to trade is much lower.
The Chinese government set an asset requirement for mainland investors into Hong Kong at 500,000 yuan in securities and cash deposits, while the China Household Finance Survey published in 2013 found the average Chinese urban resident had 2.4 million yuan in net assets. And many suspect that understates their actual wealth, thanks to widespread tax evasion.
Lu said one problem with the connect program was that Hong Kong stocks don’t offer those who hold mainland A shares much opportunity for portfolio diversification.
“Domestic investors seek assets with low correlation with mainland assets. But Hong Kong stocks are highly correlated with the A-share market, so they don’t really qualify.”
Even so, there are reasons to think that the trickle could swell in time.
Triple-digit returns on real estate investment have kept most domestic investors out of stocks, but as housing prices slide in China, analysts predict they will warm to stocks again, especially individual stocks, rather than the funds that were available — and largely scorned — through QDII.
On Friday, the Ministry of Finance said individual mainland investors would get temporary exemptions on income tax for three years when investing in Hong Kong shares.
There are also some things mainland investors would only be able to do in Hong Kong — including trade stocks such as Tencent that only have listings there, or buy and sell a stock on the same day. Hong Kong is also not bound by the 10 percent daily movement caps that apply to their northern neighbors.
And brokerages are trying hard to drum up business, too.
Wang Jianqiang, a 53-year-old Shanghai resident and long-time A-share investor, opened a stock connect account two weeks ago with 1 million yuan in cash, enticed by a 0.025 percent commission rate offered by Guangfa Securities.
He also is looking at playing Hong Kong’s more liberalized derivatives market, and his brokerage is happy to indulge him.
“The manager asked me if I’m interested in opening a margin account, and gave me 3 million yuan in credit,” he said.
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