Dual-Listed ADRs + Hong Kong Shares (June 17, 2022)
Including the ADRs in Stock Connect will be a big deal
In case you missed it, Hong Kong is working towards adding dual-listed ADRs to the Stock Connect Southbound Trading scheme. It will be a big deal if mainland Chinese investors are allowed to trade these names. Here is some background:
China still has strict capital controls in place, prohibiting unauthorized money flows into and out of the country.
Though Hong Kong is part of China, Chinese investors could not easily trade Hong Kong stocks until the launch of Stock Connect in 2014.
Today, Stock Connect Southbound Trading allows the Chinese to trade 547 of the 2578 stocks listed on the Hong Kong Stock Exchange (21% of the total).
Southbound Trading accounts for 20% of Hong Kong’s trading volume today. The flow has been concentrated on the so-called “new economy” stocks, i.e. Internet, bio-tech, advanced manufacturing etc.
In recent years, around 20 Chinese ADRs have been dual-listed* in Hong Kong, in order to mitigate the de-listing risk from the U.S. Another 80-90 ADRs are eligible for Hong Kong listings as well, but they have yet to do so.
The dual-listings are not part of the Southbound Trading program, and they lack the liquidity that’s much needed to support the share price.
* The technical terms are primary dual-listing and secondary listing.
Implications:
Keep reading with a 7-day free trial
Subscribe to Daily Reflection on China to keep reading this post and get 7 days of free access to the full post archives.