HONG KONG, CHINA – JUNE 05: A pedestrian walks by an digital display screen displaying the numbers for the Hang Seng Index on June 5, 2023 in Hong Kong, China. (Photo by Chen Yongnuo/China News Service/VCG through Getty Images)
China News Service | China News Service | Getty Images
Investors will now be capable of commerce chosen Hong Kong shares in each the Hong Kong dollar and Chinese yuan within the so-called dual counter scheme that launched Monday.
The newly launched “HKD-RMB Dual Counter Model” will see an preliminary 24 firms begin providing yuan counters to permit traders in Hong Kong to commerce within the yuan, along with the Hong Kong forex. Companies on the record embrace tech heavyweights like Tencent, Alibaba and Baidu.
The dual counter mannequin covers securities listed in each Hong Kong greenback and renminbi counters solely. The Hong Kong Exchange said all shares of the identical securities within the two totally different trading counters will likely be “totally interchangeable between counters.”
In an unique interview on CNBC’s “Squawk Box Asia,” Hong Kong Exchanges and Clearing CEO Nicolas Aguzin mentioned the transfer was geared toward giving traders extra choices for investments, as properly as extra diversification prospects.
“This program is geared toward primary, ensuring that we give extra choices to traders. Number two, that we proceed serving to on the internationalization of the renminbi.” Thirdly, he mentioned it “solidifies” Hong Kong’s role as a yuan trading hub.
The HKEX CEO famous that the preliminary batch of 24 firms make up about 40% of the typical each day trading quantity within the Hong Kong.
“We would count on that to proceed increasing,” he added. “And over time, I feel an excellent majority of the shares in our markets will likely be taking part on this program.”
With trading volumes in Hong Kong at a 4 12 months low, Aguzin mentioned he expects a rise in turnover from the new dual join mannequin, noting there are “loads” of yuan deposits in Hong Kong. As such, “you are tapping a liquidity pool that’s in renminbi that may now be capable of make investments straight,” he identified.
The key goal is to simplify the southbound circulate of investments from the mainland, Aguzin mentioned.
Investments from the mainland are at present carried out through the Southbound Stock Connect, which permits mainland traders to buy Hong Kong shares in Hong Kong {dollars}.
Stock Connect is a mutual market entry program that enables traders in mainland China to commerce and settle shares in Hong Kong through exchanges and clearing home of their dwelling market, and vice versa.
Aguzin highlighted that it is “very inconvenient for the mainland traders, [and] the truth that they may [now] be capable of transact immediately foundation in renminbi, that is an enormous distinction.”
He foresees extra funding circulate from the mainland, particularly from retail traders.
“One of the challenges of Hong Kong is it is solely 7 million folks. So it’s totally restricted when it comes to retail. But the mainland, 1.4 billion folks, that is loads. And a variety of that may come via Stock Connect and assist liquidity in our market.”
The dual counter mannequin will initially goal the choices at traders holding offshore yuan, and finally, allow mainland traders to commerce yuan shares listed in Hong Kong utilizing onshore yuan, Reuters reported.
While there isn’t a agency date for when investments through Stock Connect will be capable of entry the dual counter mannequin, Aguzin mentioned it will take just a little little bit of time, and the HKEX is working carefully with regulators and different stakeholders to verify all the pieces will likely be in place earlier than making an announcement.
Not the primary strive
This will not be the primary time that such a scheme is being launched in Hong Kong.
In 2012, the Hong Kong change launched an analogous scheme known as the “dual tranche, dual counter” mannequin, which allowed the issuer to supply and record two tranches of shares in each the Hong Kong greenback and Chinese yuan.
As with right now’s dual counter mannequin, shares of each RMB tranche and the HKD tranche had been of the identical class, and shareholders below these two tranches are anticipated to be handled equally.
According to Bloomberg, that scheme didn’t take off when just one firm took it up.
The distinction this time is that there’s a “dual counter market maker program” — geared toward offering liquidity to the yuan counter and minimizing value discrepancies between the Hong Kong greenback and yuan counters.
Aguzin mentioned there are at present 9 of those market makers which have signed up, and he thinks this “ought to encourage a variety of exercise and [make] certain that the markets are actually stabilized in each markets.”