HONG KONG, CHINA – JUNE 5: A pedestrian walks through an electronic screen showing numbers for the Hang Seng Index on June 5, 2023 in Hong Kong, China. (Photo by Chen Yongnuo/China News Service/VCG via Getty Images)
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The newly launched “HKD-RMB Dual Counter Model” will see the first 24 companies start offering yuan counters to allow Hong Kong investors to trade in yuan in addition to the Hong Kong currency. Companies on the list include tech heavyweights such as Tencent, Alibaba and Baidu.
The dual counter model only covers securities denominated in both the Hong Kong dollar and the renminbi. The This was announced by the Hong Kong Stock Exchange all shares of the same security on two different trading desks will be “fully interchangeable between desks”.
In an exclusive interview on CNBC’s”Squawk Box AsiaHong Kong Exchanges and Clearing chief executive Nicolas Aguzin said the move aims to provide investors with more options for investment as well as more options for diversification.
“This program is focused on number one, ensuring that we give investors more options. Second, that we continue to help the internationalization of the renminbi.” Third, he said it “consolidates” Hong Kong’s role as a trading center for the yuan.
The CEO of HKEX noted that the initial batch of 24 companies accounted for about 40% of Hong Kong’s average daily trading volume.
“We would expect that to continue to expand,” he added. “And over time, I think the vast majority of stocks in our markets will participate in this program.”
With trading volumes in Hong Kong at a four-year low, Aguzin said he expected a boost in turnover from the new dual-connect model, noting that there was “a lot” of yuan deposits in Hong Kong. As such, “you’re using a liquidity pool in renminbi that will now be able to invest directly,” he pointed out.
The main goal is to facilitate the flow of investment from the mainland to the south, Aguzin said.
Mainland investments are currently made through Southbound Stock Connect, which allows mainland investors to buy Hong Kong stocks in Hong Kong dollars.
Stock Connect is a mutual market access program that allows investors in mainland China to trade and settle shares in Hong Kong through exchanges and a clearing house in their home market and vice versa.
Aguzin stressed that it is “very inconvenient for mainland investors, [and] the fact that they will [now] being able to transact in renminbi instantly makes a huge difference.”
It foresees a greater flow of investment from the mainland, especially from small investors.
“One of the challenges of Hong Kong is that it only has 7 million people. So it’s very limited in terms of retail. But the mainland, 1.4 billion people, that’s a lot. And a lot of that can come through Stock Connect and help liquidity into our market.”
The dual-counter model will initially target offers to investors holding offshore yuan and eventually allow mainland investors to trade Hong Kong-listed yuan stocks using onshore yuan, Reuters reported.
While there is no firm date when investments through Stock Connect will have access to the dual counter model, Aguzin said it will take time and HKEX is working closely with regulators and other stakeholders to make sure everything works. in place before making the announcement.
This is not the first time such a system has been implemented in Hong Kong.
In 2012, the Hong Kong Stock Exchange launched a similar system called “dual tranche, dual counter” a model that allowed the issuer to offer and list two tranches of shares in both Hong Kong dollars and Chinese yuan.
As with today’s dual counter model, both RMB and HKD tranche shares were of the same class, and shareholders in the two tranches are expected to be treated equally.
According to Bloomberg, the plan didn’t take off with only one company taking it up.
The difference this time is that there is a “dual counter market maker program” — aimed at providing liquidity to the yuan counter and minimizing price discrepancies between the Hong Kong dollar and yuan counters.
Aguzin said nine of those market makers are currently signed up, and he thinks that “should encourage a lot of activity and [make] certainty that the markets are indeed stabilized in both markets.’