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Ten Years of Mutual Market Access

Ten years ago today, the mutual market access programmes between the Mainland and Hong Kong financial markets, or the “Connect Schemes”, were officially launched. It is an institutional innovation which facilitates the two-way flow of capital between the Mainland's and global markets, allowing international investors to directly and conveniently invest in the Mainland's financial market through Hong Kong and share the fruits of the Mainland's economic growth. At the same time, it has enabled Mainland investors to allocate assets offshore through Hong Kong, thereby achieving a mutually beneficial outcome.

The Connect Schemes have demonstrated robust vitality by adhering to the principles of respecting local market rules, accommodating cross-border investment needs, and ensuring that risks remain controllable. Their content and scope of covered products have continued to expand, now encompassing a wide range of offerings, including stocks, bonds, investment products under the Cross-boundary Wealth Management Connect, exchange-traded funds (ETFs), derivatives for risk management, and more. Recently, it was announced that real estate investment trusts (REITs) would also be included in the Connect Schemes. This ongoing interconnected development of the Hong Kong and Mainland markets has further enhanced Hong Kong's unique and attractive role in the international market.

Expanding Depth and Breadth in Numbers

Over the past decade, the number of eligible stocks under Stock Connect has grown from around 800 at the launch of the Shanghai-Hong Kong Stock Connect, to over 3,300 now under both the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect. These stocks account for 90% of the total market capitalisation of listed companies on the three markets.

The average daily turnover of Southbound trading by Mainland investors reached HK$38 billion in the first three quarters of this year, a 40-fold increase compared to the first month after the launch of the Shanghai-Hong Kong Stock Connect in 2014. Southbound trading now accounts for 16.9% of total market turnover in Hong Kong. In fact, it has become a key channel for Mainland long-term capital, such as mutual funds, insurance funds, and pension funds, to allocate assets offshore. The value of assets held by Mainland investors through the Southbound Stock Connect has exceeded HK$3.3 trillion.

For offshore investors trading Mainland stocks through the Northbound Connect, the average daily turnover reached RMB 123 billion in the first three quarters of this year, a 21-fold increase compared to the first month after its launch ten years ago. It accounted for 6.7% of the total turnover in the Mainland's market. Notably, around 77% of offshore investors' Mainland stock holdings were acquired through Northbound trading. Meanwhile, two-thirds of cross-border bond transactions by international investors were conducted via the Bond Connect. Through the Connect Schemes framework, Hong Kong has firmly established itself as the premier hub for international capital to allocate and trade Mainland financial products.

Over the past decade, the Connect Schemes have steadily deepened and expanded, facilitating the interconnected development of the financial markets in both places. The total market capitalisation of the Hong Kong stock market has reached HK$35 trillion, an increase of about 40% compared to 10 years ago, and equivalent to 11 times of Hong Kong's GDP. Since the beginning of this year, the Mainland authorities have introduced a series of measures to bolster economic and financial market development, with the average daily turnover in the Hong Kong stock market reaching HK$255 billion in October. The Connect Schemes have not only greatly enhanced the liquidity and vitality of Hong Kong's capital market but also solidified Hong Kong's competitiveness and status as an international financial centre, while supporting the gradual opening up of the Mainland capital market with risks under control.

Looking Ahead

Reflecting on the experiences of the past ten years on the Connect Schemes, there are three main areas we need to focus on for further strengthening their development.

First, we should continue to develop the Connect Schemes as the link between the Mainland and international markets. Apart from connecting traditional markets in Europe and the US, we need to expand ties with emerging markets with large populations and rapidly growing economies and incomes. This will meet the diversified asset allocation needs of both international and Mainland investors. To this end, Hong Kong is striving to strengthen ties with markets in the Global South, including attracting more quality enterprises from those regions to list on the Hong Kong Stock Exchange, and launching more cross-border investment products, thereby enabling more win-win outcomes using Hong Kong as a connecting platform. Over the past year, the listing in Hong Kong of an ETF investing in Saudi Arabia, and ETFs investing in Hong Kong on the Saudi Exchange, have been a case in point.

Second, we should continue to promote the deepening and expansion of the Connect Schemes, enabling Hong Kong to enhance its role as a "firewall," "testing ground," and capital allocation platform in the opening and development of our country's financial markets. As our country strives to become a financial powerhouse, it is actively pursuing financial reforms and promoting high-level openness. By building on the Connect Schemes, we aim to further diversify product offerings, expand the range of eligible assets, and continuously introduce innovative policies and products while keeping risks under control, all in support of the country's development.

Third, we should capitalise on the unique advantages of the Connect Schemes to support the prudent internationalisation of the renminbi (RMB). In recent years, initiatives such as "Bond Connect," "Swap Connect," and the inclusion of RMB trading counters under the Stock Connect have enriched the range of offshore RMB investment and risk management products. These developments have provided offshore RMB holders with more investment options and risk management tools, contributing to an increased share of RMB in investment and trade settlements, as well as enhancing its status as a reserve currency.

Hong Kong serves not only as a hub for capital between the Mainland and international markets but also as a platform for sharing expertise in financial development and risk management. This week, we are hosting the third Global Financial Leaders' Investment Summit. I proposed this summit over two years ago in the Budget, and it has since earned a strong reputation in the global financial community, becoming a signature annual event both regionally and internationally.

This year's summit will welcome several hundred senior executives from international financial institutions, including over 100 group chairpersons and CEOs. Under the theme "Sailing through Changes," the summit will explore emerging industries, trends, and models within a rapidly evolving global landscape. We are grateful for the strong support from Central Government leaders and relevant Mainland authorities, and the insightful addresses from these officials will offer a comprehensive and accurate overview of the latest economic and financial developments and opportunities in the Mainland.

November 17, 2024