Source: blogs.barrons.com - Wednesday, February 25, 2015
Starting next Monday, investors in Hong Kong can short sell mainland Chinese stocks via the Hong Kong Shanghai Stock Connect (but not the other way around). At first glance, this could be a good trading opportunity. The Hang Seng China AH Premium Index, which tracks the largest Chinese stocks dual listed in Hong Kong and Shanghai, is trading at 120.75, or those dual-listed Shanghai stocks are on average 21% more expensive. But as everything else in China, Beijing is willing to open the doors to market efficiency only very slowly. No more than 1% of the outstanding shares of a single stock can be shorted in a trading day, and cumulatively, no more than 5% can be shorted over 10 consecutive days. Wall Street analysts are brushing this new development away. Here is Credit Suisse ‘s Vincent Chan : we believe that the initial impact of this scheme could be rather limited, given: (1) restrictions on scale (not larger than 1% of outstanding shares per day and 5% of outstanding capital in ten trading days); (2) access to shares, as there are uncertainties over whether it is convenient to borrow stocks for shorting purposes; and (3) at this stage, foreign investors are still rather uncertain about the market dynamics of the A-share market which would limit the extent of participation at this stage. This month, the iShares China Large Cap ETF ( FXI ) rose 5.5%, the iShares MSCI China ETF ( MCHI ) gained 4.6%, the Deutsche X-Trackers Harves
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Starting next Monday, investors in Hong Kong can short sell mainland Chinese stocks via the Hong Kong Shanghai Stock Connect (but not the other way around). At first glance, this could be a good trading opportunity. The Hang Seng China AH Premium Index, which tracks the largest Chinese stocks dual listed in Hong Kong and Shanghai, is trading at 120.75, or those dual-listed Shanghai stocks are on average 21% more expensive. But as everything else in China, Beijing is willing to open the doors to market efficiency only very slowly. No more than 1% of the outstanding shares of a single stock can be shorted in a trading day, and cumulatively, no more than 5% can be shorted over 10 consecutive days. Wall Street analysts are brushing this new development away. Here is Credit Suisse ‘s Vincent Chan : we believe that the initial impact of this scheme could be rather limited, given: (1) restrictions on scale (not larger than 1% of outstanding shares per day and 5% of outstanding capital in ten trading days); (2) access to shares, as there are uncertainties over whether it is convenient to borrow stocks for shorting purposes; and (3) at this stage, foreign investors are still rather uncertain about the market dynamics of the A-share market which would limit the extent of participation at this stage. This month, the iShares China Large Cap ETF ( FXI ) rose 5.5%, the iShares MSCI China ETF ( MCHI ) gained 4.6%, the Deutsche X-Trackers Harves
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