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Crossover: Shanghai-HK stock exchanges start trading

Reporter: Cathy Yang 丨 CCTV.com

11-18-2014 10:09 BJT

The Shanghai and Hong Kong Stock Connect was officially launched on Monday. The trading program allows Hong Kong and Shanghai investors to buy and sell on each other’s stock markets. 

Although the move was seen as a landmark on China’s capital market, and widely cheered by investors, both the Shanghai and Hong Kong indexes closed down on Monday. 

The Shanghai Stock Exchange Index opened sharply at over 2 thousand 5 hundred, but then quickly lost ground. After swinging between losses and gains throughout the day, the Shanghai Composite finished at 2474, down by almost 0.2 percent. 

The Hong Kong Stock Exchange fell further. The Hang Seng opened with 0.9 percent gain amid an air of optimism, but quickly moved lower. The index stood at less than 24 thousand by closing bell, down significantly by over 1.2 percent.  

After a three-week delay, the landmark Stock Connect Scheme is now a reality. From today, investors are able to trade stock freely between Shanghai and Hong Kong, a move described as a milestone in global capital markets.

"The Shanghai-Hong Kong stock connect program was initiated from the market, to meet the needs of investors. Given the situation where China’s not fully convertible on the capital account, it creates a new mode for convenient cross-border equity investment with risk controls," says Xiao Gang, chairman of China Securities Regulatory Commissions.

Here at First Shanghai Holdings – one of over 90 brokers in Hong Kong taking part in the link – the first two hours turned out without hitches, says Executive Director Eliot Li.

Brokers had earlier expressed concern about a potential crunch on day one, saying many investors could struggle to get their orders filled.

The launch of the Stock Connect Scheme creates the world’s third-biggest equity market. It also would have created a big arbitrage opportunity between Shanghai and Hong Kong, but that’s all gone now. The discount between the A-shares and H-shares has disappeared mostly due to Shanghai’s strong performance. The opportunity though has moved beyond just short-term, momentum-driven investing.

"I think more capital will be going into Shanghai relative to Hong Kong even though some of the Mainland capital can move out this way as well. With the Connect programme opening, you actually suddenly for outside investors you’re getting access to 500-plus stocks. Many stocks in many of the sectors are not otherwise available for investors outside China," says Hao Hong, managing director of BOCOM International.

Today’s launch has yet to attract asset managers and brokers which have earlier said they’ll wait until after the first few days of trading before taking part – to see how the whole link-up works out. 

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