Southbound liquidity is a structural positive for H-shares+

On a cumulative basis, southbound flows via Stock Connect reached US$78 billion since the initial launch of the program in November 2014

Nov 21, 2017 | Mike Shiao and William Yuen

We are seeing strong flows from mainland Chinese investors into a broad group of Hong Kong-listed Chinese equity stocks that we call H-shares+. Currently MSCI China index consists entirely of Hong Kong-listed Chinese equity companies (i.e., H-shares+) and offshore American Depositary Receipts (ADRs).  Year-to-date, US$28 billion has flowed into the Hong Kong stock market.

Robust southbound flows reflect a structural allocation to H-shares+. These flows are here to stay, with rising participation from mainland Chinese insurance and other institutional investors, who are in search of unique investment opportunities not offered elsewhere. The southbound flows coming from mainland Chinese investors are clearly creating much more liquidity than many may have imagined.

This paper covers the incentives for mainland investors to invest via the Southbound Trading Link, and the reasons why we believe this trend is long-term in nature. 

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