Hong Kong-listed companies with weighted voting rights (WVR) will not be available to Stock Connect’s southbound investors, the Shanghai and Shenzhen stock exchanges said in a July 14 joint statement. This locks Xiaomi, the first company to list in Hong Kong with dual-class structure, out of the equity link .
Th e move came after Hang Seng Indexes decided in May to include WVR companies, foreign companies with their primary listing in Hong Kong, and stapled securities, which are two or more securities tied together that cannot be sold separately, in the Hang Seng Composite Index .
Followin g a consultation with onshore brokers, the exchanges said mainland investors simply do not have thorough enough an understanding of these products to trade them.
“Some said it is hard to understand the operation and finances of foreign companies, others said they have no knowledge at all of stapled securities,” said the statement. “Some [securities firms] also suggested we make the decision [to include the stocks] after piloting WVR in the mainland market.”
In a statement released on Saturday, Hong Kong Exchanges and Clearing (HKEX) agreed with its mainland counterparts’ decision to keep out foreign companies and stapled securities from Stock Connect, but argued that those with WVR should be included as soon as possible.
HKEX, which noted that it tried to reach a consensus with the bourses on this before the listing of Xiaomi, reassured onshore watchdogs that the inclusion would not compromise their ability to regulate.
“Only established and sizable WVR companies are allowed to list and applicants must also have a high expected market capitalisation of [HK]$4bn, which is higher than 74% of current eligible securities under southbound trading,” said HKEX. “[Mainland investors] will be able to diversify their asset allocation conveniently and take part in the growth of the new economy under Stock Connect, a scheme under the oversight of regulators of both sides and with risks controlled.”
RMB internationalisation recovered last year, the International Monetary Institute (IMI) at Renmin University of China said in a report.
The Institute’s RMB internationalisation index stood at 3.31 points at the end of the fourth quarter in 2017, a 44.8% uptick which sent the index back to levels not seen since three years ago, People’s Daily reported on July 16. The rebound demonstrated that RMBi has gone through a cycle, and is now ready to accelerate again, the IMI was reported as saying.
The institute said the changes in global monetary policy and increasing financial market volatility are the two key obstacles facing the RMBi agenda, Financial News, a newspaper managed by the People’s Bank of China, reported IMI as saying. Policymakers must continue to enrich the variety of RMB financial products and improve the payments infrastructure, IMI added.
The latest update to the Standard Chartered Renminbi Globalisation Index (RGI) seemed to support the IMI’s argument. The RGI rose to 1,750 points in May from 1,711 in April, which marks the largest month-on-month gain by the index in four months, according to a July 11 report by the bank.
One key driver of the index’s growth is the strong northbound flows into bonds and equities, said Kelvin Lau, senior economist for Greater China at StanChart. He noted that foreign ownership of bonds in the interbank market went up by Rmb110bn ($16.5bn) in June to Rmb1.5tr, the biggest uptick on record, and Stock Connect northbound flows also remained strong despite the onshore market’s weak showing .
Howeve r, the economist also warned of possible headwinds for RMBi .
“US-China trade tensions could weigh on [cross border payment] volume in the coming months at least, and the sell-off in the CNY since mid-June could keep genuine corporate users on the sidelines for longer,” he said.
RMB deposits in the UK went up to £8.87bn ($11.7bn) by the end of March, up from £7.2bn in December 2017, according to figures released by the Bank of England. The rise came after two consecutive quarters of losses, which saw the RMB pool shrunk from £9.7bn in June 2017.
Trading volume of RMB spot, forwards, swaps and options contracts all went up in the first quarter, with spot trading making the greatest gain — up from £23.3bn in the fourth quarter of 2017 to £28.3bn in the first quarter of this year.
A former vice chairman of the China Securities Regulatory Commission, pled guilty to bribery and insider trading charges last Wednesday, according to state media. Yao Gang was accused of taking money and property of over Rmb69.6m through his family between 2006 and 2015, and pocketing Rmb2.1m from insider trading between January and April 2007 by using information acquired at the CSRC.
HKEX’s CNH futures recorded trading volumes of over 10,000 contracts for its 10th consecutive day last Wednesday. Trading volume on July 11 stood at 12,957 contracts, up from 4,739 contracts on June 13, according to figures provided by the bourse .
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