Chinese banks are gearing up for a “transformational” change in regulations that will allow individual investors on the mainland their first chance to invest directly in Hong Kong-listed stocks and could, some say, trigger a tidal wave of funds out of China.

A pilot version of the scheme - dubbed the Hong Kong Stock Express – is to be rolled out in the city of Tianjin by four branches of the Bank of China, but it has been delayed amid reports of regulatory squabbling and concerns over an excessive exodus of funds.

Expectations for the changes are already running at fever pitch and on Monday pushed the total market capitalisation of the Hong Kong exchange to a record high of HK$17.8 trillion (£1.1 trillion).

Since the regulatory shift was announced in mid-August, the Hang Seng index has soared 10.5 per cent, driven mainly by the Hong-Kong-listed stocks of mainland Chinese companies – the shares that investors in Beijing and Shanghai are thought most likely to be interested in when finally they are able to invest.

When Chinese stocks have dual listings in Hong Kong and on the mainland, the latter invariably will be more expensive because of the speculative excitement that has pumped mainland-listed A-shares so high. The opportunity to invest in the same companies more cheaply is expected by some to be the chief attraction of the Hong Kong Stock Express scheme.

Yesterday China’s fifth-largest financial institution, the Bank of Communications (BoCom), became the latest house to apply for the right to take part in the pilot scheme that will take advantage of the newly relaxed investment rules. The Bank of China intends – via wealth management centres throughout its branch network – to make Hong Kong stock investment available in 40 other cities.

A senior BoCom executive said that individual Chinese have invested about HK$1 trillion in their own, highly volatile stocks and that about 10 per cent of that might head eventually towards the better-regulated, more transparent investment environment of Hong Kong.

Analysts cautioned strongly against pitching hopes too high, citing research that showed lukewarm early interest in the scheme in Tianjin. They said that widespread expectations of a HK$100 billion “wall of money” flowing suddenly from the mainland towards the Hong Kong bourse is probably heavily overdone.

A survey conducted by CLSA Securities in 47 Chinese cities suggests that only a limited number of Chinese feel confident enough to invest in Hong Kong-listed stocks. Less than half of those polled said they had any plans to invest outside the mainland and, of those that did, the great majority did not intend to risk large sums on a market they only partly understood.

“Viewed from the front door of the Bank of China branch in Tianjin, Hong Kong does not look as if it is about to be hit by a wave of money from the mainland,” David Murphy, an analyst for CLSA, said.

He added that he saw only a handful of customers asking about the programme when conducting the survey. “In the past ten days, 1,000 people have left their names and contact numbers. That is not a lot in a city of eight million.’’ Enthusiasm for stock investment on the mainland of China shows little sign of abating and it received a further fillip yesterday when it emerged that China Construction Bank may be planning to raise HK$7.4 billion in a flotation this month. The initial public offering would be China’s largest.

Initial public offering

On August 20, at the height of the turmoil that rocked Western markets, the Chinese authorities unveiled a trial plan to allow their citizens to invest overseas. According to a circular released by the State Administration of Foreign Exchange (Safe), individuals will be allowed to invest only in securities traded on the Hong Kong securities market with self-owned or purchased foreign currency. If that proves successful, they will be allowed to invest in other overseas markets. According to Safe, the pilot project will help China’s personal overseas investment business to gather experience in hedging risks in the international market.

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