Hong Kong bourse wakes up sober

Hong Kong bourse wakes up sober

By John Ng

HONG KONG - Beijing's decision to allow qualified mainland financial institutions to trade in overseas equities for their clients is unlikely to have a major impact. The quota set by the Chinese government is very small, currently US$13.4 billion, and the outflow of capital from the mainland is also expected to be gradual.

Hong Kong had expected to benefit most from the new ruling, but after stocks shot to a record high on Monday and Tueasday morning, the Hang Seng Index cooled after analysts' warnings and

profit-taking to fall 111.09 points, ending at 20,868.

The China Banking Regulatory Commission (CSRC) gave the official go-ahead on Friday to allow commercial banks on the mainland that hold qualified domestic institutional investor (QDII) certificates to issue wealth management products that invest in overseas stocks.

A qualified bank will be allowed to invest no more than 50% of a single wealth management product in overseas stocks. Banks are also barred from investing more than 5% of a wealth management product in a single stock, the securities regulator said in a statement posted on its website on Friday. Banks are also forbidden from using their own money in such investments, the CSRC said.

The move was immediately welcomed in Hong Kong as it would benefit most from the new policy. Joseph Yam Chi-kwong, chief executive of the Hong Kong Monetary Authority, the territory's de facto central bank, said that the expansion of the QDII program is a "strategically important move" that could help take some pressure off the appreciation of the yuan.

The move will allow the "orderly outflow of capital" from China markets, which are awash with liquidity, and allow "a more rational and healthy development", he said.