Hong Kong to Expand Trading Link to STAR Market, Biotech Stocks

(Bloomberg) — Hong Kong will expand the scope of its trading links to bourses on the Chinese mainland in a move that will give local and international investors access to a wider range of securities.

Mainlanders will be able to buy biotechnology companies listed in Hong Kong for the first time while overseas investors will be allowed to hold stocks traded on Shanghai’s technology-heavy STAR Market under the expanded program, Hong Kong Chief Executive Carrie Lam said in a policy address Wednesday. But companies with secondary listings and weighted voting rights such as Alibaba Group Holding Ltd. will remain excluded.

“The central Government supports further deepening the mutual access between the mainland and Hong Kong financial markets and the gradual expansion of the scope of eligible securities under the mutual market access programs,” Lam said.

China is accelerating the opening-up and restructuring of the world’s second-largest financial market to attract fresh foreign capital. Authorities are working on expanding the investments allowed in the program to allow foreign investors to trade more commodities futures, China Securities Regulatory Commission Vice Chairman Fang Xinghai said in September.

Initiated in July 2019 as one of China’s key projects in capital market restructuring, the STAR Market is now home to 197 listed companies with combined market value of 3.2 trillion yuan ($487 billion) as the streamlined registration system cut initial listing time from years to months.

The stock connect expansion would also be a boon to the Hong Kong exchange, which has long pushed to expand the scope of its mainland links. It’s a key source of revenue for the bourse. Investors have been flocking to the exchange this year, propelling its share price up by almost 55% while stock trading also jumped, helped by an increase in inflows from the mainland.

However, the latest announcement was a disappointment to investors betting on more inflow into shares of technology behemoths listed in Hong Kong. Companies such as Alibaba and JD.com have been excluded from the stock link as part of an earlier arrangement between the mainland and Hong Kong exchanges.

Alibaba wiped out a gain of as much as 1.9% to end the morning session 0.9% lower, and JD.com and NetEase Inc. also retreated from early increases. Hong Kong Exchanges & Clearing Ltd. fell 1.2%, after earlier gaining as much as 1.6%.

Meanwhile, Lam reiterated that Beijing supports Hong Kong in enhancing its status as an international financial center, with initiatives including expediting the implementation of the cross-boundary wealth management connect system in the Greater Bay Area, providing a tax concession for carried interest issued by private equity funds operating in Hong Kong, and further developing family offices in Hong Kong.

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