The new rule, introduced late last month, meant Chinese mutual funds no longer required a domestic institutional investor licence (QDII) to invest in Hong Kong-listed stocks.
“This announcement triggered the rally but it is not the change of rules in itself that created the massive inflow,” said Karine Hirn, co-founder of East Capital.
Previously Chinese fund managers had to use the QDII program, which Hirn said was never a big success and squashed interest for Hong Kong and other overseas market. This meant the so-called ‘southbound’ trading link – which is the flow of funds from Chinese investors into Hong Kong – was an under-used channel.
“The signal sent by the change in rule was interpreted as support from the authorities to the southbound program,” said Hirn.
The daily southbound quota was used up for the first time on 8 April, reaching a record turnover of RMB16.8bn (£1.81bn, €2.52bn, $2.71bn), causing a 16% boost to Hong Kong’s Hang Seng Index. Since the Stock Connect scheme launched in November, only 5-10% of the quota was filled on a typical day.
“Catalyst for action”
John Ventre, head of Old Mutual Global Investors multi-asset funds, suggests the change in rules to the Stock Connect scheme was a “catalyst for action”, but said it was not just the flow that pushed the index up, but the expectations in future flow.
