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In a new effort to globalise the yuan and help revive Hong Kong’s financial markets, the Hong Kong Stock Exchange has now rolled out a dual-currency trading counter which will allow international investors to trade in yuan-denominated Chinese stocks. Launched on June 19, the HKD-RMB Dual Counter Model allows trading in securities of 24 companies including Tencent, Alibaba, Xiaomi, Meituan and China Mobile, among others.
Investors can now use offshore yuan funds to trade in the yuan-denominated shares of the 24 companies, that collectively have a market capitalisation of $1.9 tn.
Setting the stage for Hong Kong Stock Exchange
Hong Kong Exchanges and Clearing has seen a fall in profits and trading volume, as investors remain wary of the political scenario in the market. Last year was one of the worst on record for Hong Kong IPOs, but the Hong Kong stock exchange is implementing new processes to attract investors.
The yuan-based trading scheme allows mainland investors to participate in the market later this year. On the other hand, Russia’s invasion of Ukraine has led to increased trade settlement in yuan. Recent data showed that the share of China’s yuan in global trade rose to 4.5% in February, up from 2% the previous year.
Russia, Saudi Arabia, Argentina, Brazil, Bangladesh, Pakistan, Iraq and Thailand are already using yuan to settle trade with China. The dual currency model will allow investors from these economies to buy securities on Hong Kong Stock Exchange.
The yuan stock codes of the 24 listed companies will have an “8” at the beginning of the corresponding Hong Kong dollar stock codes. Both the categories of the stocks will have identical features such as voting rights and dividend eligibility.
The introduction of yuan-denominated stocks opens up doors for similar initiatives in the future, such as for bonds and other investment products.
“This program is aimed at number one, making sure that we give more options to investors. Number two, that we continue helping on the internationalization of the renminbi,” said Hong Kong Clearing Exchanges and Clearing CEO Nicolas Aguzin in an interview with CNBC, adding that the move would aid Hong Kong’s role as a yuan trading hub.
“US banking industry has been in turmoil in recent months; and the US government has long been plagued by debt problems, while at the same time “monetising” huge deficits and arbitrarily freezing or even confiscating assets of other countries. These actions have undermined international confidence in the US dollar and prompted many countries to diversify their foreign exchange reserves,” writes Paul Chan, Hong Kong’s financial secretary, in a blog post.
The 24 stocks that are placed under the yuan-trading model in the Hong Kong stock exchange make up 40% of the total trading volume, and more stocks are likely to be added in the future.
Back in 2012, the Hong Kong exchange launched a similar scheme called “dual trance, dual counter”, which allowed companies to launch two tranches of their shares. However, the model received a poor response and only one company participated. This time around, the ‘dual counter market maker program’, currently signed up by nine market makers, would ensure there are fewer price discrepancies between the yuan and HKD counters.
