By Gregor Stuart Hunter
HONG KONG--Global investors flocked to buy Chinese companies on
the first day of a new trading link that opened the Shanghai market
to international capital, filling the daily $2.1 billion quota by
early afternoon.
Trading went on without a glitch after gongs rang at the
Shanghai Stock Exchange and the Hong Kong Stock Exchange. Mainland
Chinese investors were less interested in buying shares listed in
Hong Kong, with only 17% of the $1.7 billion quota filled at the
end of the trading day.
Traders bet on well-known Chinese brands that were inaccessible
to foreign investors and stand to benefit from the rise in consumer
spending in China. Among the best performers were Kweichow Moutai
Co. Ltd., the maker of the popular Chinese liquor, auto maker SAIC
Motor Corp. and milk company Inner Mongolia Yili Industrial Group
Co., whose shares were the first to trade.
Called the Shanghai-Hong Kong Stock Connect, the plan opens up
568 Chinese companies worth $2 trillion to foreign investors who
can buy them via Hong Kong. Until now, institutional investors
needed government approval to trade Chinese stocks.
The program had been in the works for months, but launched with
just a week's notice at a time of tension between Beijing and Hong
Kong, which has its own legal system and has long been used by
China as an avenue to open up its financial system.
Just blocks from the confetti-filled opening ceremony where the
city's chief executive, Leung Chun-ying, exchanged Champagne toasts
with stock exchange officials, student protesters were camped out
on one of the city's main streets.
There had been speculation in Hong Kong that Beijing was holding
off approving the trading deal because of the protests. But the
plan was announced last Monday after Chinese leader Xi Jinping met
Mr. Leung and reiterated his support for his efforts to end the
protests.
The program "is a new opportunity to invest, a new partnership
model and is really the beginning of a new era" for Hong Kong's
relationship with the mainland, said Charles Li, chief executive of
Hong Kong Exchanges and Clearing Ltd.
Brokers said trading had proceeded smoothly--easing fears that
they would struggle to fill a large quantity of orders.
"All hands were on deck waiting for the worst to happen, which
didn't," said David Friedland, Asia Pacific managing director at
Interactive Brokers. "Things went smoothly at our end."
The only surprise of the day was the lack of interest in stocks
listed in Hong Kong from wealthy mainland Chinese investors, who
took up just a fraction of their daily trading quota. "The benefit
for the Hong Kong stock market is just not significant," said Paul
Chan, chief investment officer for Asia ex-Japan at Invesco Ltd,
which manages assets of $790.3 billion and didn't make use of the
scheme today. The sum invested via the Stock Connect was "a drop in
the bucket for daily turnover, and this was the first day," he
added.
Many institutional investors opted to stay back from the launch
until initial teething issues were resolved. Fund managers
including Invesco, Baring Asset Management and Mirae Asset Global
Investments said they planned to sit out Monday's launch. Mr. Chan
said Invesco didn't trade on Monday because it couldn't prepare the
fund to trade in just a week, though he expects to participate
later.
Under the plan, global investors can buy a total of $49 billion
worth of Chinese stocks. If investors fill the daily quota every
day, the cap will be hit by mid-December. Investors widely expect
the total to eventually be increased because China wants to bring
in professional investors to the market, which is dominated by day
traders and has been one of the world's worst performers in recent
years.
Mainland Chinese investors are allowed to buy a total of $40.8
billion of Hong Kong shares with a cap of $1.7 billion a day. They
didn't show much enthusiasm for Hong Kong stocks in part because
most companies trading there are Chinese and already trade in
Shanghai, and also because many already had access to the market
through unofficial channels, industry officials said.
Asked about the relatively muted gains of the first day of
trade, Hong Kong Exchanges and Clearing's Mr. Li said the program
was "a massive bridge" that will be in place for decades and
investors shouldn't read too much into the first day of
trading.
"At this point, safety and smooth travel is much more important
than how many cars have actually crossed the bridge," he said.
Global investors ate up half of the Shanghai quota in premarket
trading Monday and the rest of the available shares were sold by
1:57 p.m., which triggered a halt to purchases.
The enthusiasm for the new stock link didn't carry over to the
markets overall. The Hang Seng Index fell 1.2% to 23,797.08 and the
Hang Seng China Enterprises Index, a gauge of mainland listed
companies which trade in Hong Kong, fell 1.9% to 10,554.30.
Shares of Hong Kong Exchanges and Clearing, the operator of the
city's stock market, were the worst-performers, down 4.5% to
HK$178.10, as trading volumes failed to register any significant
increase from the scheme.
The Shanghai Composite fell 0.2% to 2,474.01, with early gains
for the market reversing after the quota was used up. Many of the
shares that rose the most in Shanghai were midsize companies, so
they wouldn't have much of an impact on the overall index. Trading
contributed by global investors participating in Stock Connect
accounted for 6.1% of the day's total traded value.
Small investors also largely stayed on the sidelines as well on
Monday. Day-trading brokerages in Hong Kong and Shanghai had normal
crowds and many people present said they needed to learn more about
the system before investing.
Regular traders at a large branch of Haitong Securities located
on a tree-lined street in downtown Shanghai said they were only
dipping their toes into the market on the first day. The Stock
Connect "is more significant for foreign investors," said
day-trader Pan Yiyun, from the VIP trading room at Haitong. He said
his goal was to gauge the commission fees and currency-exchange
costs on the program and compare them to the fees in Hong Kong,
where he also has a brokerage account.
Jacky Wong and Amy Li contributed to this article.
Write to Gregor Stuart Hunter at gregor.hunter@wsj.com
Access Investor Kit for Invesco Ltd.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=BMG491BT1088
Access Investor Kit for Inner Mongolia Yili Industrial Group
Co., Ltd.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=CNE000000JP5
Access Investor Kit for SAIC Motor Corp. Ltd.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=CNE000000TY6
Access Investor Kit for Kweichow Moutai Co., Ltd.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=CNE0000018R8
Access Investor Kit for Daqin Railway Co., Ltd.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=CNE000001NG4
Access Investor Kit for Hong Kong Exchanges & Clearing
Ltd.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=HK0388045442
Subscribe to WSJ: http://online.wsj.com?mod=djnwires