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Tuesday, Dec 06, 2022

Hong Kong’s yuan-denominated stock trading plan gets support

Hong Kong’s yuan-denominated stock trading plan gets support

The Hong Kong government’s plan to trade yuan-denominated shares for companies listed in the city has attracted support from major businesses, despite concerns about the weakening Chinese currency.
The Hong Kong government is preparing to create yuan shares in the stock-connect program by setting up a market-maker system in the first half of next year, Christopher Hui, secretary for financial services and the treasury said on Monday. The government will submit a bill to lawmakers by the end of this year to exempt market-makers from paying stamp duty when they are providing liquidity for yuan shares.

Hong Kong Exchanges & Clearing Ltd. said the proposal would support the development of Hong Kong as an offshore yuan-funding hub and add new liquidity.

Tencent Holdings Ltd., Bank of China Ltd., Ping An Insurance Group Co., CNOOC Ltd., Sun Hung Kai Properties Ltd. and New World Development Co. voiced support for the initiative in separate statements to the media.

Alibaba Group Holding Ltd., JD.com Inc. and Xiaomi Corp also were on board, according to the local media reports.

“It is a step to make onshore investors more comfortable in outbound investment by reducing currency risk,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong. “It’s also a step for yuan internationalization and capital account opening.”

Hong Kong has been trying to build itself as a hub for offshore yuan trading by introducing more products denominated in the Chinese currency. But the previous endeavor to introduce a system known as “dual tranche, dual counter” to allow yuan-denominated shares failed to lift off.

The only company to adopt the structure since the inception a decade ago, Shenzhen Investment Holdings, saw most of its trading conducted in the freely convertible Hong Kong dollar despite having a yuan option.

The current drop in yuan could also make the new proposal less appealing to traders. The Chinese currency has dropped near 11% against the dollar this year.

“Mainland investors won’t be interested, not only because of the weaker yuan, but also sentiment of the Hong Kong market is in despair,” said Hao Hong, Hong Kong-based partner and chief economist at hedge fund Grow Investment Group.

“Right now the yuan is weak while Hong Kong dollar is pegged to the USD, which makes it even more expensive to buy HK stocks, so if it’s launched now I doubt it will rouse too much interest from mainland investors.”
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