HONG KONG, CHINA – JUNE 05: A pedestrian strolls by an electronic screen showing 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)
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Investors will now have the ability to trade picked Hong Kong stocks in both the Hong Kong dollar and Chinese yuan in the so-called double counter plan that introduced Monday.
The recently introduced “HKD-RMB Dual Counter Model” will see a preliminary 24 business begin providing yuan counters to permit financiers in Hong Kong to sell the yuan, in addition to the Hong Kong currency. Companies on the list consist of tech heavyweights like Tencent, Alibaba and Baidu
The double counter design covers securities noted in both Hong Kong dollar and renminbi counters just. The Hong Kong Exchange stated all shares of the exact same securities in the 2 various trading counters will be “fully interchangeable between counters.”
In an unique interview on CNBC’s “Squawk Box Asia,” Hong Kong Exchanges and Clearing CEO Nicolas Aguzin stated the relocation was focused on offering financiers more alternatives for financial investments, along with more diversity possibilities.
“This program is aimed at number one, making sure that we give more options to investors. Number two, that we continue helping on the internationalization of the renminbi.” Thirdly, he stated it “solidifies” Hong Kong’s function as a yuan trading center.
The HKEX CEO kept in mind that the preliminary batch of 24 business comprise about 40% of the typical everyday trading volume in the Hong Kong.
“We would expect that to continue expanding,” he included. “And over time, I think a great majority of the stocks in our markets will be participating in this program.”
With trading volumes in Hong Kong at a 4 year low, Aguzin stated he anticipates a boost in turnover from the brand-new double link design, keeping in mind there are “a lot” of yuan deposits in HongKong As such, “you’re tapping a liquidity pool that is in renminbi that will now be able to invest directly,” he explained.
The crucial goal is to streamline the southbound circulation of financial investments from the mainland, Aguzin stated.
Investments from the mainland are presently performed through the Southbound Stock Connect, which permits mainland financiers to buy Hong Kong stocks in Hong Kong dollars.
Stock Connect is a shared market gain access to program that permits financiers in mainland China to trade and settle shares in Hong Kong through exchanges and clearing home in their house market, and vice versa.
Aguzin highlighted that it’s “really bothersome for the mainland financiers, [and] the truth that they will 1687259153 have the ability to negotiate in an instantaneous basis in renminbi, that’s a substantial distinction.”
He anticipates more financial investment circulation from the mainland, specifically from retail financiers.
“One of the challenges of Hong Kong is it’s only 7 million people. So it’s very limited in terms of retail. But the mainland, 1.4 billion people, that’s a lot. And a lot of that can come through Stock Connect and help liquidity in our market.”
The double counter design will at first target the offerings at financiers holding overseas yuan, and ultimately, allow mainland financiers to trade yuan stocks noted in Hong Kong utilizing onshore yuan, Reuters reported.
While there is no company date for when financial investments through Stock Connect will have the ability to access the double counter design, Aguzin stated this will take a bit of time, and the HKEX is working carefully with regulators and other stakeholders to make certain whatever will remain in location prior to making a statement.
Not the very first shot
This is not the very first time that such a plan is being presented in Hong Kong.
In 2012, the Hong Kong exchange introduced a comparable plan called the “dual tranche, dual counter” design, which permitted the company to provide and note 2 tranches of shares in both the Hong Kong dollar and Chinese yuan.
As with today’s double counter design, shares of both RMB tranche and the HKD tranche were of the exact same class, and investors under these 2 tranches are anticipated to be dealt with similarly.
According to Bloomberg, that plan stopped working to remove when just one business took it up.
The distinction this time is that there is a “dual counter market maker program”– focused on supplying liquidity to the yuan counter and decreasing cost disparities in between the Hong Kong dollar and yuan counters.
Aguzin stated there are presently 9 of these market makers that have actually registered, and he believes this “must motivate a great deal of activity and [make] sure that the marketplaces are truly supported in both markets.”
