(Bloomberg) — Hong Kong Exchanges & Clearing Ltd. wants the Chinese authorities to look beyond the city-state when they strike deals to massively increase the range of securities available to the countrys investors.
Charles Li, HKExs chief executive officer, told analysts gathered for his companys annual results presentation on Thursday that he expects the Chinese leadership will announce several major alliances in the next 12 months. Each new deal will help to open up the countrys financial system, giving his exchange greater access to the estimated $22 trillion of investable assets currently trapped in Chinas banking system.
The more activity we see, the more product there will be, he added. Im not worried that they want to talk to everyone else. The fact that they are talking to other exchanges — if they announce anything — will mean a milestone in the changing of their mindset.
Li said that HKExs equity-trading link with the Shanghai Stock Exchange, which launched last November, marked the start of a new phase in the integration of Chinas financial system with the rest of the world. HKEx plans to announce a second link, this time connecting it to the Shenzhen Stock Exchange, before expanding the range of assets on the Shanghai link in the second half of this year. Equity derivatives and commodities may join cash equities on Stock Connect — the official name for the link — Li said.
Its my personal belief that they are going to make it very easy to convert renminbi into Hong Kong dollars and vice versa, he said. Any effort to do that will make Connect work better. Those changes will be better for capital flows.
Yuan Deposits
Although some foreign companies already hold deposits of the Chinese currency, they face restrictions on how this money can be used. For example, international investors can buy yuan- denominated bonds in Hong Kong, but they struggle to sell them in the secondary market.
Chinas domestic stock market is worth about $5.5 trillion, making it far too small to absorb much of the $22 trillion in the banking system.
The biggest challenge for China is to find product, Li said. Our biggest job is to provide product so that liquidity can move away from the banks. We will always be taking a large chunk if not the largest chunk of this market.
