Chinese regulators will allow foreign investors to short-sell Chinese stocks for the first time starting next month under the Stock Connect trading link between Hong Kong and Shanghai, according to the Hong Kong exchange.
Hong Kong Exchanges and Clearing (HKEx) says foreign investors will be allowed to short a combined total of up to 1 percent of a company’s shares on any given day, or up to 5 percent over any 10-day period, starting March 2. Foreigners will be limited to short-selling stock included in the Shanghai-Hong Kong link.
The announcement comes after months of slower-than-expected activity via the Stock Connect program, which analysts and investors have attributed to glitches in operation, excessive bureaucracy and the existence of alternative means of investing in mainland Chinese stocks, such as the qualified foreign institutional investor scheme and the renminbi qualified foreign institutional investor scheme.
Stock Connect, which allows Hong Kong retail investors and foreign institutional investors to trade mainland stocks directly through Hong Kong’s exchange, has seen total stock purchases of only 100 bn yuan ($16 bn) since it began, or only a third of the total allotment of 300 bn yuan. On Stock Connect’s launch in November, analysts predicted the 300 bn yuan allotment would be used up within a few weeks.
The announcement of the short-selling change came after both the Shanghai and Hong Kong exchanges had closed for the Chinese Lunar New Year holiday, which began on February 19.
Chinese authorities are planning to extend the Stock Connect program to the Shenzhen Stock Exchange, with its higher concentration of technology and manufacturing stocks that many foreign investors seek, and may increase the number of stocks open for trade under the current arrangement.
