Chinese stock exchanges said that they would not allow mainland investors to buy shares with weighted-voting rights in Hong Kong, sending Xiaomi Corp (小米) shares slumping.
The bourses would also bar trading in foreign companies and stapled securities via the Hong Kong stock link, the Shanghai Stock Exchange said in a statement on Saturday, adding that many investors do not understand the risks associated with new products.
Xiaomi tumbled as much as 9.6 percent before paring declines.
The move comes before the three classes of shares are included in the city’s Hang Seng Composite Index in the third quarter, which would otherwise have made them eligible for the stock connect.
Hong Kong opened the door for companies with weighted-voting rights in April, with rules designed to lure Chinese tech firms. The new regulations allowed the type of structure favored by founder-led tech firms, which enable leaders to keep control after going public.
Dual-class shares, as they are commonly known, were previously banned in the city and are not permitted in China’s stock market.
“Companies like Xiaomi are well known in China and might attract big flows from the mainland — regulators certainly don’t want such big outflows to cross the border while the A-share market remains weak,” CEB International Investment Corp head of research Banny Lam (林樵基) said. “Such potentially big outflows would pressure its currency and hurt liquidity conditions.”
Xiaomi declined to comment.
Hong Kong Exchanges & Clearing Ltd is very selective about approving listings of weighted-voting rights companies and that sufficient safeguards to protect investors are already in place, it said in a statement released after the ruling.
The HKEx fell 0.5 percent at 10:29am local time, while Xiaomi was down 1.4 percent.
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