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Shenzhen-HK Connect can aid market reform
By Xu Weihong | Source:Global Times Published: 2016/12/13 0:13:39
Illustration: Peter C. Espina/GT
As Fang Xinghai, vice chairman of China Securities Regulatory Commission, pointed out in a public speech, the Shenzhen-Hong Kong Stock Connect's main aim is not at attracting foreign capital. More important is the introduction of overseas institutional investors into the mainland stock market which can help elevate overall quality, including establishing a higher requirement in the disclosure of market information and in governance structure of listed companies.
After more than 20 years of development, individual investors still represent the majority of participants in the A-share market - a situation mainly due to the insufficient diversity of institutional investors. The newly launched stock connect that bridges the mainland capital market with Hong Kong's, is expected to attract more institutional investors to further refine investment structure in the A-share market. Facing rising homogeneous competition among domestic securities companies, the Shenzhen-Hong Kong Stock Connect has opened doors to new business which will allow the domestic securities industry to provide services to international investors, exchange communication and enhance integration in relevant ideologies and systems and make the Chinese capital markets' systems and regulations more market-oriented and internationalized.
China's stock market is never short of liquidity. Enormous accumulations of private capital have made each round of the "Chinese-style" bull market much more relentless than overseas markets. The most significant strategic importance of the Shenzhen-Hong Kong Stock Connect by no means lies in promoting capital inflows into the A-share market that is already associated with big fluctuations, but in the yuan's internationalization, especially as the Chinese currency faces challenges in its exchange rate and interest rate. And the ultimate market challenge in the yuan's internationalization is the collision of the ideas of risk control from domestic and overseas financial institutions, which will eventually affect the stability of the yuan's exchange and interest rates. In this respect, Hong Kong plays an irreplaceable role in the true internationalization of the yuan in the bond market, money market and futures market, considering the city is one of the world's top three financial hubs, and is China's first choice of managing risk control in overseas markets.
At the same time, against the backdrop of further opening-up in China's stock market in this year's second half, tightening and intensive restrictions on home purchases have prompted a transparent decline in property transactions. Every round of adjustment in home-buying policies and big property price fluctuations has driven close market attention to capital flows. Since 2014, some market observers have described the heated development in China's stock market and property market as an alternating occurrence. As China's property policies reach an inflection point, speculative capital that was previously injected into the housing market is likely to move into the A-share market.
For the coming year, I won't jump to the conclusion that overseas stock markets, including Hong Kong, will face plenty of so-called black swan events, because looking into the movement of international asset prices following the US election of isolationist Donald Trump and Italy's vote against constitutional reform, financial investment managers across the globe have largely remained calm and rational. Yet in this respect, we need to be flexible in the use of international financial leverage and financial derivatives and seize the opportunity to facilitate Chinese capital into foreign markets via financial centers like Hong Kong.
However, the Shenzhen-Hong Kong Stock Connect mainly serves as a channel that facilitates southbound capital. Increasing investment in overseas markets is necessary for a more globalized Chinese economy, and this will require more domestic investment banks to be market-based and have a global perspective. Over the past few years overseas investment under the Qualified Domestic Institutional Investors scheme initiated by those overseas returnees hasn't performed well as the public had expected. This was partly due to the financial cycle in the overseas markets, but more importantly can be attributed to the lack of domestic professional teams for managing overseas mutual funds. Following enhanced regulatory measures toward private funds, further development in the internationalization of China's asset management industry is anticipated.
Against the backdrop of mixed operations in the finance industry with a combination of investment banking, commercial banking and insurance businesses, China's reforms in financial regulation as well as in the integration of industrial capital and financial capital have lagged behind. Looking at the international community, the US and Europe have embarked on different paths in terms of regulating mixed operations. Hong Kong being the base of international financial institutions in Asia is well experienced in supervising financial activities from interdisciplinary perspectives. The Chinese mainland could learn from Hong Kong's regulatory experience via the Shenzhen-Hong Kong Stock Connect to meet its demand for economic development.
The author is chief economist with AVIC Securities. bizopinion@globaltimes.com.cn
By Xu Weihong | Source:Global Times Published: 2016/12/13 0:13:39
Illustration: Peter C. Espina/GT
As Fang Xinghai, vice chairman of China Securities Regulatory Commission, pointed out in a public speech, the Shenzhen-Hong Kong Stock Connect's main aim is not at attracting foreign capital. More important is the introduction of overseas institutional investors into the mainland stock market which can help elevate overall quality, including establishing a higher requirement in the disclosure of market information and in governance structure of listed companies.
After more than 20 years of development, individual investors still represent the majority of participants in the A-share market - a situation mainly due to the insufficient diversity of institutional investors. The newly launched stock connect that bridges the mainland capital market with Hong Kong's, is expected to attract more institutional investors to further refine investment structure in the A-share market. Facing rising homogeneous competition among domestic securities companies, the Shenzhen-Hong Kong Stock Connect has opened doors to new business which will allow the domestic securities industry to provide services to international investors, exchange communication and enhance integration in relevant ideologies and systems and make the Chinese capital markets' systems and regulations more market-oriented and internationalized.
China's stock market is never short of liquidity. Enormous accumulations of private capital have made each round of the "Chinese-style" bull market much more relentless than overseas markets. The most significant strategic importance of the Shenzhen-Hong Kong Stock Connect by no means lies in promoting capital inflows into the A-share market that is already associated with big fluctuations, but in the yuan's internationalization, especially as the Chinese currency faces challenges in its exchange rate and interest rate. And the ultimate market challenge in the yuan's internationalization is the collision of the ideas of risk control from domestic and overseas financial institutions, which will eventually affect the stability of the yuan's exchange and interest rates. In this respect, Hong Kong plays an irreplaceable role in the true internationalization of the yuan in the bond market, money market and futures market, considering the city is one of the world's top three financial hubs, and is China's first choice of managing risk control in overseas markets.
At the same time, against the backdrop of further opening-up in China's stock market in this year's second half, tightening and intensive restrictions on home purchases have prompted a transparent decline in property transactions. Every round of adjustment in home-buying policies and big property price fluctuations has driven close market attention to capital flows. Since 2014, some market observers have described the heated development in China's stock market and property market as an alternating occurrence. As China's property policies reach an inflection point, speculative capital that was previously injected into the housing market is likely to move into the A-share market.
For the coming year, I won't jump to the conclusion that overseas stock markets, including Hong Kong, will face plenty of so-called black swan events, because looking into the movement of international asset prices following the US election of isolationist Donald Trump and Italy's vote against constitutional reform, financial investment managers across the globe have largely remained calm and rational. Yet in this respect, we need to be flexible in the use of international financial leverage and financial derivatives and seize the opportunity to facilitate Chinese capital into foreign markets via financial centers like Hong Kong.
However, the Shenzhen-Hong Kong Stock Connect mainly serves as a channel that facilitates southbound capital. Increasing investment in overseas markets is necessary for a more globalized Chinese economy, and this will require more domestic investment banks to be market-based and have a global perspective. Over the past few years overseas investment under the Qualified Domestic Institutional Investors scheme initiated by those overseas returnees hasn't performed well as the public had expected. This was partly due to the financial cycle in the overseas markets, but more importantly can be attributed to the lack of domestic professional teams for managing overseas mutual funds. Following enhanced regulatory measures toward private funds, further development in the internationalization of China's asset management industry is anticipated.
Against the backdrop of mixed operations in the finance industry with a combination of investment banking, commercial banking and insurance businesses, China's reforms in financial regulation as well as in the integration of industrial capital and financial capital have lagged behind. Looking at the international community, the US and Europe have embarked on different paths in terms of regulating mixed operations. Hong Kong being the base of international financial institutions in Asia is well experienced in supervising financial activities from interdisciplinary perspectives. The Chinese mainland could learn from Hong Kong's regulatory experience via the Shenzhen-Hong Kong Stock Connect to meet its demand for economic development.
The author is chief economist with AVIC Securities. bizopinion@globaltimes.com.cn