The Hong Kong stock market has recently ushered in a significant rise, with the Hang Seng Index opening higher for three consecutive days.
This change is made possible by the new "Nine Measures" and five capital market co-operation measures in Hong Kong, which aim to enhance Hong Kong's status as an international financial centre and support the coordinated development of the capital markets of the two places. Under the influence of the US dollar interest rate hike cycle, the liquidity of Hong Kong stocks was limited, and the Hang Seng Index fell for three consecutive years. The new measures are expected to improve the liquidity of Hong Kong stocks and bring about capital injections.
Technical analysis shows that the annual candlestick has turned red, and the weekly candlestick is on the rise.
At present, there are two main ways to invest in Hong Kong stocks in the A-share market: directly through the Hong Kong Stock Connect or purchase A-share listed Hong Kong ETFs. Comparatively, the latter has a lower threshold. Trading in the Hong Kong market is concentrated in blue-chip stocks, which are widely covered by A-share listed Hong Kong ETFs.
To promote liquidity, on 19 April, the SFC announced five measures for Hong Kong capital market cooperation: expanding eligible ETF products, adding REITs, including the RMB counter in Hong Kong Stock Connect, enhancing the Mutual Recognition of Funds, and supporting domestic enterprises to list in Hong Kong.
These measures, which will boost the liquidity of Hong Kong stocks in the long term, have recently driven their prices higher.
The Hong Kong stock market is facing liquidity challenges, with liquidity mainly concentrated in the top companies, while the liquidity of the middle and tail companies is quite poor. In 2013, the turnover of the Main Board and GEM of the Hong Kong Stock Exchange was HK$2.552 billion, and the constituent stocks of the Hang Seng Index accounted for a huge proportion.
Hong Kong's Financial Secretary has actively sought to improve liquidity, implementing measures such as reducing trading fees and improving trading mechanisms, and the introduction of renminbi counter stocks into the Southbound Stock Connect is also aimed at attracting more mainland investment and reducing exchange rate risks.
One of the key points of the CSRC's "Five Measures for Cooperation with Hong Kong" is to "relax the scope of eligible products of stock ETFs under Stock Connect".
In terms of specific operations, it is planned to moderately reduce the AUM requirements of eligible equity ETFs, reduce the weighting requirements of Southbound Southbound Southbound ETFs and corresponding stocks, and make similar adjustments to Northbound Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect ETFs.
As far as the Stock Connect is concerned, the threshold for inclusion of ETFs has been lowered from no less than HK$1.7 billion to HK$550 million, and the weighting ratio of stocks listed on the Stock Exchange and Southbound Securities has been unified to no less than 60%, eliminating the practice of differentiating between different indices.
After the adjustment, as long as the constituent securities of the ETF-tracking index meet the requirements, they can be included in the Stock Connect Scheme. Therefore, mainland investors can invest in more Hong Kong stocks through the Stock Connect.
Another measure is to support the inclusion of the renminbi stock trading counter of the Hong Kong Stock Exchange in the Stock Connect. This means that Hong Kong-listed securities can be purchased directly using RMB. The Hong Kong Stock Exchange approved 24 listed companies to set up RMB counters, mainly blue chips and Hong Kong Stock Connect targets.
Hong Kong Stock Connect ETFs require a dedicated account, while Hong Kong stock ETFs listed on mainland exchanges have convenient advantages: similar to the investment objectives of Hong Kong Stock Connect ETFs, covering a wide range of industries, and directly settled in RMB, the operation is simpler and faster.
Hong Kong stock ETFs mainly invest in the Hang Seng Index, focusing on Internet and state-owned giants, accounting for half of the index. Tencent Holdings holds 9.32% of the shares. The top 10 weighted stocks in the Hang Seng Index are: Tencent Holdings, HSBC Holdings, Alibaba, Meituan, AIA, China Construction Bank, China Mobile, Industrial and Commercial Bank of China, CNOOC, and Bank of China.
Attached is a list of major ETFs in Hong Kong stocks: