Stock Connect, the two-way trading link between the Chinese mainland and the Hong Kong Special Administrative Region, will celebrate its 10th anniversary this Sunday.
It has contributed net inflows of $690 billion to both stock markets, and has played a key role in opening up the mainland’s financial markets and cementing Hong Kong’s position as an international financial hub.
Rolled out in November 2014, the Stock Connect program initially allowed for trading between the stock exchanges of Hong Kong and Shanghai, and was expanded to include Shenzhen in late 2016. A connect scheme for the bond market was launched in 2017.
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Over the past decade, the southbound channel of the Stock Connect — mainland investors trading eligible shares listed in Hong Kong — has injected HK$3.4 trillion ($440 billion) to the city’s stock market, while the northbound channel has contributed almost 1.8 trillion yuan ($250 billion) to the mainland, according to a Hong Kong Stock Exchange report to mark the 10-year milestone.
“Stock Connect has made Hong Kong’s stock market more dynamic with mainland investors accounting for 30 to 40 percent of daily trading,” said Kenny Ng, securities strategist at China Everbright Securities International Co. “As more mainland companies expand into Hong Kong, the program will become more active,” he added.
Ng noted that Hong Kong stocks were heavily swayed by external factors before the program was introduced, but the influence has since lessened.
As of September 2024, more than 3,300 eligible stocks are traded via Stock Connect, accounting for nearly 90 percent of the total market capitalization and 80 percent of the trading volume of the Shanghai-Shenzhen-Hong Kong markets.
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In the first three quarters of this year, the average daily traffic made by Hong Kong investors in the mainland stock market reached 123.3 billion yuan, and mainland investors traded around HK$38.3 billion in Hong Kong stocks, increasing by 21 times and 40 times respectively compared with the figures recorded 10 years ago.
“The Connect schemes have achieved ‘win-win’ for both mainland and Hong Kong capital markets,” the report noted.
“The southbound trading mechanism has maintained steady net inflows even during the years when the Hong Kong capital market faced challenges, providing important supplement to the market’s liquidity and bolstering Hong Kong’s status as a global financial center,” the report added.
Tom Chan Pak-lam, permanent honorary president of the Institute of Securities Dealers, called for further improvement of Stock Connect, such as lowering the current threshold of HK$5 billion in market capitalization for international companies to be included in the program, in a bid to make it more accessible.
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Chan also suggested reducing taxes for Hong Kong and overseas investors buying mainland stocks via the northbound channel, which could help attract more global investors to the mainland market.
In addition, under Stock Connect, all cross-border capital flows are ultimately conducted in renminbi, which is conducive to the development of offshore renminbi business in Hong Kong. As for Bond Connect, the total issuance of renminbi-denominated bonds in Hong Kong reached 540 billion yuan in 2023, a 3.5-fold increase compared with 2020.
