Stock Connect expansion will pull more firms to HK

Financial Secretary Paul Chan Mo-po said yesterday China's move to allow more Hong Kong-listed overseas companies to be included in the stock connect program with the mainland will help attract more foreign firms to go public here.

Last Friday, the China Securities Regulatory Commission's vice chairman Fang Xinghai said the CSRC would launch three measures, including pushing for the inclusion of more Hong Kong-listed foreign companies in the southbound trading of the stock connect program with mainland China.

The inclusion, Chan wrote in his blog, will help enhance the liquidity and market valuation of these foreign stocks, which is also conducive to attracting more high-quality and well-known foreign firms with close business ties with the mainland to list in Hong Kong.

Italian luxury group Prada (1913) and Russian aluminum producer Rusal (0486) are more likely to be included among Hong Kong-listed foreign companies, thanks to their relatively large market value, said Kenny Ng, a strategist at Everbright Securities International.

Looking ahead, although the inclusion may not be a dominating reason for foreign firms to choose Hong Kong as a preferred listing venue, it certainly has a positive effect on the city's new listing activities, Ng added.

Meanwhile, the CSRC will also support Hong Kong to introduce yuan-denominated stock trading desks and will study including them in the southbound stock connect.

Chan said a working group has been set up to deal with the technical challenges and the government plans to introduce the bill on waiving stamp duty for market makers in yuan-denominated trading to the Legislative Council this year.

The CSRC also supports Hong Kong's plans to roll out treasury futures and will push for the opening up of the domestic treasury futures market.

Meanwhile, Fang said China will implement an audit agreement with the United States announced late last month and will strengthen communication with foreign investors.

The agreement will allow US regulators to vet accounting firms in mainland China and Hong Kong, potentially ending a long-running dispute that threatened to bar more than 200 Chinese companies from US exchanges.

US regulators have selected e-commerce majors Alibaba (9988) and (9618) among US-listed Chinese companies for audit inspection starting this month under the agreement.