China Fund News Taylor
17 On the evening of A shares reported a "bad" news. The China Securities Regulatory Commission made a big move and took action to ban "fake foreign capital" northbound funds! Some fake foreign capital took a detour back to A to make trouble, and now there is nothing to do. As for the impact, I can only see you on Monday!
Let’s see what the CSRC said.
CSRC took action to block fake foreign investment
for one year, only sell after expiration, no more buys are allowed!
On December 17, the China Securities Regulatory Commission issued a notice on public soliciting opinions on the amendment of the " Several Regulations on the Transaction Interconnection Mechanism of Mainland and Hong Kong Stock Markets ". The revision of
shows that this time, the first paragraph of Article 13 of the "Regulations" is revised to, "Investors enjoy the rights and interests of stocks purchased through the internal and Hong Kong stock market trading interconnection mechanism in accordance with the law. Investors in Shanghai and Shenzhen Stock Connect do not include mainland investors."
The implementation measures for the Shanghai-Shenzhen-Hong Kong Stock Connect business synchronously revised by the Shanghai-Shenzhen Stock Exchange further clarifies the specific scope of mainland investors. Mainland investors include "Chinese citizens who hold Chinese identity documents, legal persons registered in mainland China and non-legal person organization , and do not include Chinese citizens who have obtained overseas permanent residence identity documents."
In order to smoothly promote the standardization work and protect the legitimate rights and interests of existing investors, the regulatory authorities have also made transition period arrangements. From the date of implementation of the rules, Hong Kong brokers are not allowed to open new trading rights for mainland investors in the Shanghai and Shenzhen Stock Connect.
Fund Jun has sorted out several key contents.
1, affecting nearly 40,000 trading users
In recent years, some mainland investors have opened securities accounts and northbound trading rights in Hong Kong, and traded A shares through the Shanghai and Shenzhen Stock Connect. At present, the overall scale of such transactions is not large, and the transaction amount accounts for about 1% of northbound transactions. There are about 1.7 million investors, but most of them have no actual transactions. In the past three years, there have been about 39,000 mainland investors who have northbound transactions.
2. There are many so-called "fake foreign capital"
Such securities activities are inconsistent with the original intention of introducing foreign capital in the Shanghai-Shenzhen Stock Connect. More than 98% of these investors have opened mainland securities accounts to directly participate in A-share trading. The two channels of trading have the risk of cross-border violations, which has also created the market with the impression of many so-called "fake foreign capital" in northbound trading, which is not conducive to the stable operation and long-term development of the Shanghai-Shenzhen-Hong Kong Stock Connect.
3. Investors in Shanghai and Shenzhen Stock Connect do not include mainland investors
Investors enjoy the rights and interests of stocks purchased through the Mainland and Hong Kong stock market trading interconnection mechanism in accordance with the law. Investors in the Shanghai-Shenzhen Stock Connect do not include mainland investors.
Mainland investors include "Chinese citizens who hold Chinese identity documents and legal persons and non-legal person organizations registered in mainland China, and do not include Chinese citizens who have obtained overseas permanent residence identity documents."
4. Transition period arrangement
0 From the date of implementation of the rules, Hong Kong brokers are not allowed to open new trading rights for mainland investors in the Shanghai and Shenzhen Stock Connect. One year from the date of implementation of the policy is the transition period. During the transition period, existing mainland investors can continue to buy and sell A shares through the Shanghai and Shenzhen Stock Connect. After the transition period is over, existing investors are not allowed to actively buy A shares through the Shanghai and Shenzhen Stock Connect, and the A shares they hold can continue to be sold; the trading rights of mainland investors without holding shares will be cancelled in a timely manner by Hong Kong brokers.
Why did the CSRC do this?
Recently, foreign capital is accelerating its inflow into A-shares. As of December 16, northbound funds have shown a net buying status for 12 consecutive trading days, with a cumulative net inflow of 82.106 billion yuan, surpassing the peak in December 2019 and setting a new record for net buying in a single month. Although the net outflow of northbound funds on December 17 was part of the net outflow, the latest cumulative net purchase amount of 75.543 billion is still exceeding December 2019.
Among them, on December 9, northbound funds "sweeped" 21.656 billion yuan, setting the second highest point since the Internet. Among them, Shanghai Stock Connect and Shenzhen Stock Connect net purchases of 11.591 billion and 10.065 billion respectively.
In fact, the phenomenon of mainland funds detours Hong Kong to allocate funds to speculate on A-shares has existed for many years.
In 2019, a regulatory letter issued by the official website of the Hong Kong Securities and Futures Commission pointed out: "At present, the price of capital allocation in Hong Kong is only half of the level of the mainland. Hong Kong's capital price has great advantages, and the level of leverage can also be relatively high. Many mainland funds allocate funds through Hong Kong and then detour back to A-shares."
For this reason, Li Xiaojia , who was then the CEO of the Hong Kong Stock Exchange, stated that he did not think it was easy to allocate funds in Hong Kong, nor did he leverage at any time to raise funds dozens of times leverage . At the same time, Hong Kong securities companies have very strict margin management.
Although the financing leverage is not as high as dozens of times, the advantage of lower cost financing costs than the mainland has always been recognized by the industry.
Some industry insiders said that the allocation cost of foreign-funded private banks in the Hong Kong market is relatively low, and an annualized interest rate of about 2% is generally to find private banking institutions, and 5 times of leverage allocation is also feasible.
In the mainland market, in terms of the securities firm's margin trading business , the financing cost is about 6-8% annualized interest rate, and most of the leverage is about 2 times.
In September this year, a piece of information caused a stir in the market - the main foreign capital in the A-share market is not overseas fund , but the mainland quantitative fund giants that obtained a license in Hong Kong. They allocate 5 times the capital in Hong Kong, frequently operate in the A-share market, and their scale has expanded rapidly.
According to First Financial , due to the high financing costs and difficulty in margin trading in the domestic market, many domestic private equity firms set up institutions in Hong Kong or use Hong Kong brokers to raise funds. The cost is only about 1/4 of that in the mainland and the leverage is higher. This has caused concerns among all sectors that high leverage may intensify market fluctuations, and quantitative also leads to accelerate market rotation and aggravate the phenomenon of "grouping" small and medium-sized market value companies. At the same time, from the perspective of fairness, some quantitative institutions enjoy faster trading speeds and have the advantages of T+0 trading.
Some experts believe that some investors overly deify their operating style of northbound funds, treat northbound funds as smart funds in the market, and invest in stocks in the footsteps of northbound funds. This gives northbound funds an opportunity to harvest the interests of mainland investors. Mainland funds are attracted by mainland investors' worship and follow-up investments in northbound funds, so they pretend to be northbound funds, buy stocks, use the operations of mainland investors following the trend, reduce their holdings at high prices, and achieve profit exit.
Northbound funds are theoretically mainly foreign-invested institutions, mainly value investment and long-term investment. However, northbound funds often play short-term and speculate in concepts, which runs contrary to the traditional investment style of foreign-invested institutions. Perhaps they follow the customs and play short-term arbitrage. Perhaps they are the vest funds of mainland hot money , using investors' blindly following their mentality to manipulate stock price arbitrage.
Now the composition of northbound funds is very complicated. It is not just foreign-invested institutions, but is mixed with a lot of mainland funds, pretending to be foreign-invested funds, hoping to maximize benefits through troubled waters. However, some market views do not recognize the essence of this problem, and still argue in various ways that northbound funds flow in, that is, foreign capital is optimistic about A-shares, which is the beginning of the bull market. However, some mainland funds are causing trouble, and the inflow and outflow of northbound funds are no longer a simple attitude towards foreign-invested institutions. Many of them are a view of mainland funds, which actually leads to misleading investors.
As for the impact on A-shares? See you on Monday! Happy weekend everyone.
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