HONG KONG, CHINA – JUNE 05: A pedestrian walks through an electronic screen displaying Hang Seng Index numbers on June 5, 2023 in Hong Kong, China. (Photo by Chen Yongnuo/China News Service/VCG via Getty Images)
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Investors will now have the ability to trade select Hong Kong stocks each Hong Kong dollar AND Chinese yuan in the so-called double counter scheme that went live to tell the tale Monday.
The newly introduced “HKD-RMB Dual Counter Model” will include the initial 24 yuan meter corporations to permit Hong Kong investors to trade yuan in addition to Hong Kong currency. Amongst the businesses on the list are such tech corporations as Tencent, Alibaba AND Baidu.
The dual-counter model only includes securities listed in each HK Dollar and Renminbi. The Hong Kong Stock Exchange reported all shares of the identical securities in two different credit unions will likely be “fully interchangeable between credit unions”.
![The CEO of HKEX discusses the 3 goals of his new model with two HKD-RMB meters](https://image.cnbcfm.com/api/v1/image/107258787-16871423481687142343-29945989196-1080pnbcnews.jpg?v=1687146685&w=750&h=422&vtcrop=y)
In an exclusive interview with CNBC’s “Squawk Box Asia”, Hong Kong Exchanges and Clearing CEO Nicolas Aguzin said the move was intended to supply investors with more investment options in addition to greater opportunities for diversification.
“This program is designed to make sure that we give investors more options in the primary place. Second, that we proceed to assist internationalize the renminbi.” Third, he said it “strengthens” Hong Kong’s role as a yuan trading hub.
The CEO of HKEX noted that the initial batch of 24 corporations represents around 40% of the typical every day trading volume in Hong Kong.
“We might expect it to proceed to grow,” he added. “I feel over time, the overwhelming majority of stocks in our markets will participate in this program.”
With Hong Kong trading volume at a four-year low, Aguzin said he expects trading volume to extend with the brand new dual connect model, noting that there are “loads” of yuan deposits in Hong Kong. As such, “you might be touching a pool of renminbi liquidity that may now have the ability to speculate directly,” he noted.
A key goal is to simplify the flow of investment southwards from the mainland, Aguzin said.
Mainland investments are currently made through Southbound Stock Connect, which allows Mainland investors to buy Hong Kong shares with Hong Kong dollars.
StockConnect is a mutual market access program that enables mainland Chinese investors to trade and clear Hong Kong equities through exchanges and clearing houses in their home market and vice versa.
Aguzin stressed that that is “very inconvenient for continental investors, [and] the indisputable fact that they are going to [now] having the ability to make easy transactions in renminbi makes an enormous difference.”
It foresees a greater flow of investment from the continent, especially from retail investors.
“Certainly one of Hong Kong’s challenges is that it only has 7 million people. So it is extremely limited in terms of retail. But a continent, 1.4 billion people, is loads. And quite a lot of that may undergo Stock Connect and help liquidity our market.”
The dual-counter model will initially goal investors holding offshore yuan and can eventually allow mainland investors to trade Hong Kong-listed yuan shares using onshore yuan, Reuters reported.
While there isn’t a specific date when investments via Stock Connect will have the ability to access the dual meter model, Aguzin said it should take a while and HKEX is working closely with regulators and other stakeholders to make sure that every part goes easily. in place prior to the announcement.
Not the primary try
This is just not the primary time such a program has been introduced in Hong Kong.
In 2012, the Hong Kong Stock Exchange launched an identical program called “double tranche, double counter” a model that allowed the issuer to supply and list two tranches of shares in each Hong Kong dollars and Chinese yuan.
Much like today’s two-meter model, the shares of each the RMB and HKD tranches were in the identical class, and shareholders under the 2 tranches are expected to be treated equally.
In accordance with Bloomberg, this program was not successful when just one company took it up.
The difference this time around is that there’s a “double market maker program” – designed to maintain the yuan counter liquid and minimize price discrepancies between Hong Kong dollars and yuan counters.
Aguzin said there are currently nine market makers registered and believes this “should encourage quite a lot of motion and [make] sure that the markets are really stabilized in each markets.”