Hong Kong’s exchange, the HKEX, has described as ‘temporary’ a worrying dispute with its Shanghai and Shenzhen counterparts over plans to block investor access to dual-class shares.
The Shanghai and Shenzhen exchanges caught investors and the HKEX by surprise at the weekend when they announced they would not allow mainland investors to buy shares in Hong Kong-listed foreign firms – companies with different voting right structures.
Xiaomi, which made a weak debut recently, was the first company to list in Hong Kong with weighted voting rights in a $4.7 bn deal following a rule change in the city to allow dual-class share structures.
The perspective of investors and the exchange was the hope that Xiaomi’s inclusion in the Hang Seng Composite Index – which forms the basis for shares included in the Stock Connect – would help attract a flow of capital from the Chinese mainland.
The Stock Connect scheme links the Shanghai and Shenzhen exchanges on the mainland with the Hong Kong exchange, allowing Chinese investors their only direct means of trading offshore stocks and international investors access to China’s companies.
But Shanghai and Shenzhen announced on Saturday they would block mainland access after consulting domestic brokerages and after highlighting that most investors expressed a lack of understanding about the new type of securities.
Charles Li, CEO of HKEX, said in a statement on Monday that he would discuss the move with Chinese regulators. But he expressed no doubt about the situation: ‘When you look at the announcements, it is not about whether to include, it’s about when to include – it’s about temporarily giving people a chance to look at [dual-class shares], to study how they will work, but the direction of the inclusion is not changing.’
He added that any ‘small difference’ between the exchanges was not going to change the role of Hong Kong as a connector between international markets and China.
