[Newsmaker] Shanghai-H.K. link leaves KOSPI intact
The Shanghai-Hong Kong stock connect scheme ― touted as a milestone in the liberalization of China’s capital markets ― launched Monday, with very little impact on the Korean bourse.
Korea’s stock market dipped only slightly as investors appeared to be taking a wait-and-see attitude. The government too said it would watch for further developments before taking any actions.
“As we do not expect the trading scheme to lead to an immediate surge in capital outflows from Korea’s stock market in the short term, the government is not yet considering any new policies in response,” said Kim Sung-wook, head of the Finance Ministry’s international finance division.
The Shanghai-Hong Kong stock connect scheme is a stock link allowing foreign investors to buy stocks in Shanghai, while mainland investors are permitted to directly trade in Hong Kong-listed firms. With the move, foreign investors will now have more access to the 560 or so of the listed companies on the mainland such as the high-profile Haier Group, a Chinese multinational electronics company, and liquor provider Moutai.
According to the Chinese local media, the trading value of the scheme reached $910 million within 10 minutes on opening. The benchmark Korea Composite Stock Price Index edged down 0.08 percent from the previous day as investors eyed the market with caution.
Han Zheng (fifth from right), secretary of the Communist Party of China Shanghai Municipal Committee, and Xiao Gang (fourth from right), chairman of the China Securities Regulatory Commission, attend the launch ceremony of Shanghai-Hong Kong Stock Connect program in Shanghai, Monday. (Xinhua-Yonhap)
However, market watchers said that China’s opening of its financial market may have a negative impact on the Korean stock market in the long run.
“The opening of China’s finance market will eventually lead to capital outflows from Korea’s stock market as it increases the possibility of its stock market joining the Morgan Stanley Capital International indexes ― a U.S.-based provider of global stock market indexes,” said Jeon Byeong-seo, a professor at Kyung Hee University.
The Chinese government said Monday it decided to offer tax exemptions to foreign investors in a move reflecting its desire to attract more foreign capital.
China has been collecting a 10 percent capital tax on stock transfers by foreign investors, but this will be exempted for the next three years. The tax exemption will also apply to Qualified Foreign Institutional Investors and RMB Qualified Foreign Institutional Investors for the fairness of existing investors.
Currently, South Korea has the largest portion in the MSCI emerging markets index with 15.9 percent. However, if China joins the index, it will take up over 10 percent and Korea’s portion will inevitably shrink.
When China joins the MSCI emerging markets index, there will be a foreign capital outflow of 6 trillion won ($5.4 billion) from South Korea’s stock market, according to a report released by Seoul-based Daishin Securities.
“What we can do for now is step up efforts to make the Korean stock market more attractive to foreign investors by listing more good companies and removing barriers for foreign investors,” said Choi Nam-gil, head of Korea Exchange’s Chinese stock market department.
By Shin Ji-hye (firstname.lastname@example.org)