The Hong Kong Securities and Futures Commission (SFC) and the China Securities Regulatory Commission (CSRC) have agreed to increase the daily trading quota for both northbound and southbound trading links beginning next month.
Daily quota for each of the northbound trading links (for investors in Hong Kong buying and selling stocks of companies listed in Shanghai and Shenzhen) will be increased to RMB 52bn ($8.28bn) while that of the southbound links will add to RMB 42bn ($6.69bn).
Previously, the daily quota for southbound and northbound trading were RMB 13bn and RMB 10.5bn, respectively.
The trading quota, which is put in place to control cross-border capital flow, was used up twice in the programme’s short history.
Daily quota of northbound trading was used up within hours of the opening of the Shanghai-Hong Kong Connect in November 2014. The quota of southbound trading was fully exhausted for the first time during the A-shares market rally back in April 2015, which led up to a market rout in August in the same year.
The announcement came after the country’s president Xi Jinping delivered a speech at the Boao forum in which he pledged to broaden market access for foreign investors and in general create a more attractive investment environment.
Fang Xinghai, vice chairman of the CSRC, told the mainland’s media that the quota expansion is to address an expected increase in foreign investors’ demand for China’s onshore equity after the inclusion of A-shares into the MSCI indices beginning this summer. Global portfolios will need to add exposure to China’s A-shares, which will likely require a larger amount of Stock Connect quota.
He believes the quota increase will not add huge volatility to the onshore equity market as the majority of offshore investors are from institutional side, meaning that they are more long-term and measured investors than retail investors. Institutional exposure to China’s A-shares remains minimal at around 2%, he noted.
The Stock Connect with Shanghai’s exchange was launched on 17 November 2014, followed by the opening the Shenzhen connect two years later. On the three-year anniversary of the launch of the Shanghai link in November 2017, the total value of trading over both the Shanghai and Shenzhen connect schemes has surpassed $1trn, according to data from the Hong Kong stock exchange.
