Money flows to Shanghai as landmark stocks link with Hong Kong opens

Mon Nov 17, 2014 4:16am EST
 
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By Kazunori Takada and Saikat Chatterjee

SHANGHAI/HONG KONG (Reuters) - International buyers snapped up Chinese stocks on Monday at the debut of an exchange link that allows Hong Kong and Shanghai investors to trade shares on each other's bourses, a major step towards opening China's tightly controlled capital markets.

The so-called Stock Connect scheme gives foreign and Chinese retail investors unprecedented access to the two exchanges, which some analysts said could eventually lead to the creation of the world's third largest stock exchange.

Northbound trade - investors with Hong Kong accounts buying mainland shares - far outstripped trade from mainland investors in the opposite direction, with the daily limit for buying Shanghai stocks under the scheme exhausted by mid-afternoon.

But there was no sustained first-day bounce in prices - benchmark mainland and Hong Kong indexes opened more than 1 percent higher but soon sagged to close lower on the day.

The run-up to the launch saw a strong market rally, partly on expectations of an increase in fund flows from the scheme, leaving investors cautious of chasing stocks any higher, said Zheng Weigang, senior trader at Shanghai Securities.

"In the longer run, however, the connect will surely benefit both markets as China increasingly opens up to the outside world," Zheng added. "Particularly, the connect will help push the mainland's rampant speculative stock culture towards a more investment-oriented market."

The CSI300 index .CSI300 of top Chinese shares closed down 0.5 percent while the Shanghai Composite Index .SSEC fell 0.2 percent. The Hang Seng Index .HSI in Hong Kong ended down 1.2 percent.

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Hong Kong Exchanges and Clearing Ltd. Chairman Chow Chung-kong (L) and Hong Kong Chief Executive Leung Chun-ying smile after hitting a gong during the launch ceremony of the Shanghai-Hong Kong Stock Connect in Hong Kong November 17, 2014. REUTERS/Bobby Yip