A-share liberalization to boost confidence

Nobody expected an avalanche of liquidity from Hong Kong, Taiwan and Macao investors on the first trading day under a new rule allowing them to invest directly in the Chinese mainland stock market.

But analysts said it marked the start of a new effort in diversification that could become an important market force.

The opening of China's A-share market to Hong Kong, Taiwan and Macao residents will introduce capital to the mainland stock market and also boost investors' confidence, they said, although analysts added that the full impact could take much longer to be felt.

From Monday, the China Securities Regulatory Commission allowed Hong Kong, Taiwan and Macao residents living on the mainland to open trading accounts for the A-share stock market, or yuan-denominated stocks.

Some analysts said the new rule could generate billions of yuan in new investment funds, while others cautioned that the expectation was too high because the A-share market is considered by many investors outside the mainland to be too risky and immature.

But mainland brokerages have been actively pitching for potential customers.

Shenyin & Wanguo Securities told China Daily: "About 450,000 Hong Kong, Taiwan and Macao residents are living on the mainland. Most of them have legal renminbi income, and many are high net worth individuals. The new rule will introduce more investors and more capital into the market."

The Shanghai Securities Journal said the move will broaden the channel for capital to return to the mainland market from Hong Kong, Macao and Taiwan. It will boost the two-way flow of capital between the mainland and offshore regions, together with a forthcoming QDII 2 (Qualified Domestic Institutional Investors 2) project allowing mainland investors to open brokers' accounts in Hong Kong to trade on the city's stock exchange.