HKMA CEO says Hong Kong considering ‘deepening’ some connect schemes with China

By Thomson Reuters Apr 9, 2024 | 3:57 AM

By Julie Zhu

HONG KONG (Reuters) -Hong Kong Monetary Authority (HKMA) is considering deepening some investment connection schemes between the city and mainland China, CEO Eddie Yue said on Tuesday.

Yue told the HSBC Global Investment Summit in Hong Kong that there was capacity for greater “southbound” activity from Chinese investors into Hong Kong’s financial markets.

“What we’re trying to do is really to deepen some of these connect schemes … It’s just the beginning of a long journey, especially the southbound flows, the capital or the investments coming out from China into the world,” Yue told the conference.

He did not give further details.

Northbound trading in the connect schemes allows offshore investors to buy China-listed products including stocks, bonds, exchange-traded funds (ETFs) and wealth management products, while southbound is designed for Chinese-based investors to buy into Hong Kong products.

“Think about the Bond Connect. Currently it’s very limited,” said Yue, adding that only Chinese banks can use the southbound Bond Connect.

“But what if the eligible investor classes are extended to for example, asset managers in China or importantly insurance companies or pension funds in China in future, there could be a very big potential in money for global bonds through the Hong Kong platform.”

Mainland China and Hong Kong in 2017 launched a long-awaited “Bond Connect” programme that links China’s bond market, the world’s second-largest, with overseas investors in a bid to liberalise and strengthen the capital markets.

The scheme initially started with northbound, allowing foreign investors to buy and sell Chinese bonds, and in 2021, the southbound leg of the programme was launched to expand Chinese investors’ access to global bond markets.

The financial hub, which has taken a hit from China’s economic slowdown and geopolitical tensions, is also looking to boost its market competitiveness and liquidity via a number of measures, according to Julia Leung, head of the city’s securities watchdog.

Initial public offerings (IPOs) in Hong Kong in the first quarter were valued at $507 million, down nearly 30% from a year earlier, LSEG data showed. Capital flight also made the city’s stock market the worst-performing major index last year.

Apart from continuing to lower transaction costs, Leung, chief executive of the Securities and Futures Commission (SFC), said at the same conference that other potential measures in the medium and long term include reducing bid and ask spreads on stock trading and enhancing the pricing process of IPOs.

In late 2023, Hong Kong cut the stamp duty rate for stock transactions to 0.1% from 0.13% for both buyers and sellers to help bolster liquidity.

(Reporting by Julie Zhu in Hong Kong; writing by Scott Murdoch in Sydney; editing by Muralikumar Anantharaman, Miral Fahmy and Jason Neely)