Monday's launch of the stock connect scheme allowing Hong Kong and Shanghai investors to trade on each other's bourse will be a mostly one-way street, with foreign money pouring into China, but little to entice mainland cash southwards for now. Foreign stock exchanges have long been hoping to attract a share of China's massive personal deposits - worth 50.4 trillion yuan ($8.23 trillion) in September - but mainland investors have been unmoved.
They showed scant enthusiasm for the Qualified Domestic Institutional Investor (QDII) programme, 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 Chinese investors.
Domestic punters appear similarly cool on the connector. "There are around 3 million retail investors who are eligible for the (stock connect) programme, 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 means to trade is much lower; Beijing set an asset requirement for mainland investors into Hong Kong at 500 thousand yuan ($81,628) 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 programme was that Honga 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 HK 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. Extra incentive came on Friday, when China's Finance Ministry announced that 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 Chinese 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 neighbours. And brokers 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 considering playing Hong Kong's more liberalised 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.
Comments
Comments are closed.