Hong Kong’s stock market chief predicted yesterday that Chinese investors would one day be able to take part in yuan-denominated initial public offerings (IPOs) following further moves by Chinese regulators aimed at promoting the city as a yuan hub.
Hong Kong Exchanges and Clearing chief executive Charles Li (李小加) said that letting Chinese invest in a stock offering at the same time as other investors would eliminate the risk of a price bubble and that it was the most “politically feasible” method.
A Chinese regulatory official said earlier this week that the country would loosen restrictions to encourage Chinese companies to list in Hong Kong.
Chinese investors are currently restricted to so-called “A-shares” traded on the country’s domestic markets in Shanghai and Shenzhen. Otherwise, they have few opportunities to invest their cash.
A plan in 2007 to allow Chinese to invest directly in Hong Kong’s stock market sent the benchmark Hang Seng Index to a record high as Hong Kong investors anticipated a wave of pent-up cash flowing in from China, but the plan was later shelved.
Li said that by allowing Chinese investors to participate in an IPO or secondary share placement, “they’re not going to suffer because the stock has already been bid up by people waiting for them to come.”
Letting Chinese invest in stocks denominated in the yuan would also eliminate any exchange rate risks, he added.
Li gave few details or a time frame for his predictions, which he said would be the likely natural outcome of measures to ease restrictions on listings by Chinese companies in Hong Kong announced this week by China Securities Regulatory Commission vice chairman Yao Gang (姚剛).
Beijing is promoting use of the yuan, as well as Hong Kong’s role as an offshore yuan trading hub. In April, Hong Kong held the first yuan-denominated IPO outside of China, a US$1.6 billion offering for Hui Xian Real Estate Investment Trust (匯賢房地產投資信託基金).