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Nov 17, 2014 1:52 AM

Hong Kong-Shanghai cross-border stock link debuts

The Associated Press

HONG KONG (AP) International investors plowed money into mainland China's main stock market on Monday after the debut of a cross-border trading link giving outsiders wider access through brokers in Hong Kong.

In contrast, the flow of money in the opposite direction was just a trickle on the first day of trading on the Shanghai-Hong Kong Stock Connect.

Officials in both cities banged gongs to mark the start of trading on the stock link, which lets investors buy and sell shares through each other's exchanges.

"Today we are going to witness history," C.K. Chow, the chairman of stock exchange operator Hong Kong Exchanges and Clearing, said at an opening ceremony. "It is a breakthrough in the opening up of China's financial markets and an important milestone in the development of Hong Kong as a unique gateway between the mainland and international investors."

The stock connect will give all sorts of investors outside mainland China access to the stock market in the world's No. 2 economy for the first time.

Until now, access has been closely managed, mainly through a quota program for select fund managers representing a fraction of the overall market.

By early afternoon, investors buying mainland Chinese stocks through Hong Kong in so-called "northbound" trading had used up nearly all of their daily 13 billion yuan ($2.1 billion) quota.

The trading link also gives wealthy Chinese investors access to a market outside of the mainland for the first time. But Chinese investors had only used up just over a tenth of their daily 10.5 billion yuan ($1.7 billion) limit for Hong Kong stocks, according to data posted on the Shanghai Stock Exchange website.

Trading is subject to daily and overall limits so that the stock exchanges can regulate the pace of turnover. Investors are also limited to buying and selling selected stocks, consisting of 568 mainly blue-chip companies on the Shanghai exchange and about half that number in Hong Kong.

Hong Kong has officially been a part of China since Beijing took control of the former British colony in 1997 but the Asian financial hub retains its own separate legal and financial system and currency.

"It's really the beginning of a new era," said Hong Kong Exchanges CEO Charles Li. When asked by reporters about lackluster gains for Hong Kong shares on the first day, he said the link was "a massive bridge, this is a massive road, and it is going to be here not for days, not for weeks, not even for months, it is going to be here for years and decades."

"At this point, safety, smooth travel is much more important than how many cars that actually cross the bridge," he added.

There's minimal interest from mainland Chinese in buying Hong Kong shares because small-time investors are effectively shut out by a requirement for participants to have at least half a million yuan in their accounts, said Huang Cendong, an analyst at Sinolink Securities in Shanghai.

That leaves only the bigger, wealthier clients, who probably already had other channels to invest in Hong Kong, Huang said. Chinese investors also need more time to study Hong Kong shares, which perform differently to Shanghai shares, he said, adding that uncertainty hanging over Hong Kong because of ongoing democracy protests is also damping sentiment.


Researcher Fu Ting in Shanghai contributed to this story.


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