Foreign investors could become more confident about equity markets in Hong Kong and mainland China if enhancements were made to the Stock Connect programme, a financial industry group said, amid a rally driven by hopes for a policy shift from Beijing and enthusiasm about innovation in the technology sector.
Lyndon Chao, managing director of the equities and post trade division at the Asia Securities Industry and Financial Markets Association (ASIFMA), said last week that changes to the 10-year-old trading channel would improve liquidity and give global investors more confidence about stocks in Hong Kong and on the mainland.
After years of losses, stock indexes in Hong Kong and on the mainland have been buffeted recently by a rally in tech stocks, thanks in part to a revelation by start-up DeepSeek that it developed two large language models at a fraction of the cost and computing power required by US competitors. Inflows from foreign passive funds and mainland investors via Stock Connect have grown recently, according to public data.
Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.
Chao said implementing block trades - sales of large volumes of securities that are privately negotiated between parties - in the Stock Connect would be a welcome improvement. He said block trades provided greater certainty in terms of price and execution, adding that the connect programme is "still a very vanilla pipe for buying and selling" shares.
In 2023, the China Securities Regulatory Commission and Hong Kong's Securities and Futures Commission said they would introduce block trading in the connect programme, though implementation is still being worked out.
"We expect the first phase of implementation sometime this year," Chao said. "It may help improve market liquidity if investors are able to trade through Stock Connect as they do in other markets, further boosting market confidence."
Another enhancement, Chao said, would be to keep Stock Connect operational during Hong Kong holidays when mainland Chinese markets were open. At the moment, northbound trading was unavailable during Hong Kong holidays even though mainland markets remained open, which limited investor participation, Chao said.
Exchange Square in Hong Kong's Central district. Photo: Robert Ng alt=Exchange Square in Hong Kong's Central district. Photo: Robert Ng>
Story Continues
"With severe weather trading now in place, hopefully holiday trading can be facilitated as well," he said.
In addition, ASIFMA is seeking to make more A-shares - yuan-denominated equities that are traded in Shanghai and Shenzhen - eligible for trading in the Stock Connect programme. Chao said at present, the connect scheme granted access to around 50 per cent of A-shares, mostly large-cap constituents of major indices.
Chao acknowledged that the limits were in place to protect retail investors, but he said partial access was "an unnecessary constraint which impedes market liquidity".
The industry group is also calling for access to hedging instruments, like listed futures or securities lending, so investors can engage in short selling through Stock Connect. Chao said these tools were essential for improving investor confidence and market liquidity.
Addressing the sustainability of the current stock market rally, Chao said investors needed policy stability from Beijing to rebuild trust and confidence.
"The trajectory of policy is heading in the right direction and [it is] conducive to the stock market," he said.
China unleashed a slate of policies in September to support the nation's housing and stock markets. Since then, Chao said, Beijing seemed to have scaled back actions it took to rein in tech companies, the education sector and real estate developers.
He added that investment momentum in China would be anchored on "the growth of the real economy, the competitiveness of Chinese companies and their ability to innovate and produce". He also said success in terms of momentum would be subject to "how other markets and economies are doing as money seeks relative value opportunities globally".
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2025 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2025. South China Morning Post Publishers Ltd. All rights reserved.
