Hong Kong Stock Markets Open up to Mainland Chinese Investors
Do you think it’s good for the rest of the world if China allows its people to invest anywhere? How about for China?
This article, translated from Modern Weekly, talks about the beginning steps that China is taking in this direction, by first opening up the Hong Kong equity markets to mainland Chinese investors:
Testing the Waters of Hong Kong’s Stock Markets
China’s State Administration of Foreign Exchange recently began permitting individual mainland Chinese investors to directly invest in Hong Kong’s stock exchanges. Tianjin’s Binhai New District has become the “special Hong Kong stock trading district” - the only place where mainland Chinese investors can legally invest in Hong Kong stocks (for now). This important policy adjustment will create a new outlet to foreign markets for the huge amount of accumulated assets in mainland China.
Hong Kong Stocks Will Go Up From Mainland Chinese Investors’ Enthusiasm
To mainland Chinese companies that are listed on Hong Kong’s stock exchanges, this is great news. The new investment policy does not impose any upper limit to the amount of capital that can be invested in Hong Kong’s stock markets, which means that the amount of capital that flows into Hong Kong could be huge. The capital flowing in from mainland China will push up the value of stocks in Hong Kong, especially for companies that have both A and H shares. But a deeper perspective also reveals that Chinese investors will face the danger brought about from the changing whims of global investors. Hong Kong is home to internationalized capital markets, the game is played differently there than in mainland China.
Longer Term, Investing in Hong Kong’s Markets Will Bring Danger to China
The turbulence in Hong Kong’s markets brought about by subprime mortgage problems from America is a good example. And since Chinese investors must first switch from RMB to Hong Kong dollars to invest in Hong Kong’s stock markets, Chinese investors will face a big problem from the inevitable continued rise of the RMB. This opening up to the outside investing world is a move worthy of praise, but from a long term perspective it means that if Asia runs into another financial crisis like that of ten years ago, China will no longer be completely closed off from the rest of the world - China will inevitably be at least somewhat shaken by global and other Asian capital markets.
