Stock link trading seen to pick up pace

Trading of Hong Kong shares under the Shanghai-Hong Kong Stock Connect is expected to pick up pace after months of lukewarm transactions, analysts said yesterday.

Since the program started in November, southbound trading — Chinese mainland investors buying Hong Kong shares — has lagged behind those buying Shanghai equities.

The daily volume of southbound trading averaged 500 million yuan (US$80 million), against a daily average of 2 billion yuan of northbound trading, data from the two bourses showed.

"The situation is expected to reverse amid a widening premium of A shares to H shares and the yuan depreciation," Jill Wu, analyst with Shenwan Hongyuan Securities, told a financial forum at Shanghai Advanced Institute of Finance yesterday.

The premium of mainland shares to their Hong Kong-listed counterparts has widened to 26 percent as of last Friday, according to the Hang Seng China AH Premium Index.

"About 60 percent of dual-listed A shares now are trading at 50 percent higher than those listed in Hong Kong, leaving arbitrage opportunities in H shares," Wu said.

The yuan is depreciating while the Hong Kong dollar is set to strengthen because of its link with the US dollar, which would see a capital outflow from the mainland to Hong Kong, Wu said.

Wang Kangning, investment director with APS Asset Management Pte, said the trading volume under the stock link will rise as securities regulators ease curbs on investing.

Mainland investors need to have at least 500,000 yuan in portfolio value to participate in the stock connect program.