China’s A shares are now available to international retail investors, as a “through train” linking the Shanghai and Hong Kong stock markets was rolled out on Nov 17th, 2014.
Shanghai-Hong Kong Stock Connect as of 1st May 2018 allows a net 94.0 billion yuan of daily cross-boundary purchases, 70.5 billion more than in 2014, granting overseas investors greater access to A shares as well as diversifying domestic investments.
What is Shanghai-Hong Kong Stock Connect?
The program, announced by Premier Li Keqiang in April 2014, allows international investors, institutional and retail, to trade Shanghai-listed stocks via the Hong Kong Exchange while Hong Kong H shares are eligible for trading by mainland investors.
Before the program, direct access to A shares was limited to domestic investors and qualified foreign institutional investors within an authorized quota.
Who are eligible investors?
While all Hong Kong and overseas investors are allowed to trade Shanghai-listed shares under Stock Connect, eligible participants for southbound trade include mainland institutional investors and those individuals holding an aggregate balance of not less than 500,000 yuan in securities and cash accounts
How to open an account?
There are 94 brokers in Hong Kong and 89 in the mainland who have already participated in Stock Connect, according to a list provided by regulatory authorities.
To trade through these market participants, retail investors will need to open an account. Application documents include:
Proof of identification — ID card, Entry Permit for traveling to and from Hong Kong and Macao or passport.
Proof of residence — property ownership certificate, utilities bill, mobile bill or social security statement.
What are eligible stocks?
By the 20th December 2018, there were 795 eligible stocks for northbound trading, namely constituent stocks of the Shanghai Stock Exchange 180 Index and the SSE 380 Index as well as shares that are dual-listed in the two bourses (A+H shares).
For southbound trading, investors are able to trade 323 eligible stocks, namely constituent stocks of the Hang Seng Composite LargeCap Index and the Hang Seng Composite MidCap Index as well as shares that are dual-listed in the two bourses (A+H shares).
Trading under Stock Connect is initially subject to quota restrictions. Overseas investors can only invest a net value of up to 300 billion yuan in A shares with a daily cap of 52 billion yuan, while mainland investors can only invest a net value of up to 250 billion yuan in Hong Kong stocks with a daily cap of 42 billion yuan.
Both quotas apply on a “net buy” basis, which means investors are always allowed to sell their cross-boundary securities regardless of the quota balance.
Trading hours and holiday arrangements
In initial operation of Shanghai-Hong Kong Stock Connect, investors are only allowed to trade on the other market on days when both are open for trading and banking services are available on the corresponding settlement days.
Northbound trading follows the trading hours of the Shanghai Stock Exchange, while southbound trading follows those of the Hong Kong Stock Exchange.
Investors can place northbound orders five minutes before the mainland market session opens in the morning and in the afternoon.
International investors can trade and settle Shanghai-listed stocks in renminbi only, while mainland investors can trade Hong Kong-listed stocks in Hong Kong dollars and settle trades in renminbi.
Northbound trades follow the A share settlement cycle, meaning international investors buying Shanghai-listed stocks on T-day can only sell the shares on and after T+1. Therefore, day trading is not allowed for the A shares market.
For southbound trading, mainland investors are allowed to conduct day trading for Hong Kong stocks.
Fees and levies
International investors trading Shanghai-listed stocks under the program are subject to a handling fee and securities management fee by the Shanghai Stock Exchange, as well as ChinaClear’s Transfer Fee, together with stamp duty and dividend tax imposed by the State Administration of Taxation.
Subject to regulatory approval, Hong Kong Securities Clearing Company is also imposing a new fee, called a “Portfolio Fee”, collected monthly from market participants for providing depository and nominee services for their securities held in the Central Clearing and Settlement System.