Hong Kong’s stock exchange is eyeing new ways to link mainland China with global markets, including in the sensitive area of letting investors bet against the country’s shares and indexes.
Hong Kong Exchanges & Clearing Ltd. said on Thursday it wants to expand the Stock Connect program. This trading link allows foreign investors with accounts in Hong Kong to buy and sell stocks in Shanghai and Shenzhen. It also allows Chinese investors on the mainland to trade Hong Kong-listed stocks.
The $43 billion group said in the next three years it wanted to broaden Stock Connect to include exchange-traded funds, listed bonds, and shares in newly listed companies.
It also wants to introduce short selling, or the ability to bet against stocks by borrowing and reselling shares, to both legs of the program. Subject to regulatory approval, it is also aiming to launch futures products tied to A-shares, as mainland stocks are known, as soon as 2019.
Short selling is a thorny topic in China. Authorities cracked down on the practice during a market rout in 2015 and it remains both expensive and restricted to a small portion of the market.
However, proponents of short selling argue it helps markets price stocks more efficiently, by giving skeptical investors a way to act on their views. Licensing restrictions on A-share indexes mean that international investors are also limited in their ability to use futures and options to hedge their risks, or simply bet on the markets without buying underlying shares.
Index provider MSCI Inc. is due on Thursday afternoon New York time to announce if it will increase the presence of mainland shares in some influential benchmarks. In a recent investor consultation, it flagged shorting and hedging issues as two “accessibility constraints.”
The exchange’s goals are part of a broader three-year strategic plan, which also aims to lure more global and regional companies to list in the city. On Wednesday, it reported a record annual net profit, after reclaiming the world’s top spot for initial public offerings in 2018.
Last April, the Hong Kong exchange revamped its listing rules to allow listings by companies such as Xiaomi Corp. and Meituan Dianping, which have unequal voting rights, as well as by unprofitable biotechnology companies. Chief Executive Charles Li said the group was working with counterparts in Shanghai and Shenzhen on letting mainlanders invest in Xiaomi and Meituan—something they cannot do at present because of the supervoting rights.
Write to Joanne Chiu at [email protected]
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