China curbs threaten Hong Kong investments
China’s latest crackdown on cross-border stock trading may affect as much as HK$250 billion of assets in Hong Kong, according to the outlet. The move aims to tighten control over capital outflows, with regulators targeting brokerages operating on the mainland without licenses.
The company estimates that Futu Holdings accounts for around HK$150 billion to HK$180 billion of the affected assets, while Tiger Brokers represents another HK$45 billion to HK$50 billion.
The crackdown comes as more mainland investors chase higher returns in the US and other overseas markets, with Chinese equities largely lagging in performance while returns on fixed-income products have trended lower. They are looking for better current account options to manage their assets.
Under the plan’s two-year transition period, existing investors may continue to access their accounts but will only be allowed to sell assets and withdraw funds. Purchases and fund deposits are prohibited.
Morgan Stanley said that the measures remove a major regulatory overhang while leaving the financial impact manageable. The bank said that it does not expect all mainland customer accounts in Hong Kong to be shut down within two years.
Citic said that the HK$250 billion figure does not completely translate into potential selling for Hong Kong stocks and that the market fallout is likely to be manageable. The affected assets are spread across different products, and any equity selling would probably happen gradually during the two-year period.
Market Impact
The brokerage expects demand for overseas asset allocation to shift towards compliant onshore wealth-management platforms. Brokerages and wealth managers with strong client bases and robust cross-border offerings could stand to benefit from this sale of assets.
China’s benchmark CSI 300 Index rose as much as 1.1 per cent on Monday on expectations the tighter capital controls would redirect flows into domestic equities. Still, the gauge is up less than 6 per cent this year, underperforming the regional benchmark’s nearly 20 per cent gain and S&P 500’s 9 per cent advance.
Futu shares plunged 28 per cent after the company said regulators proposed about US$271 million in fines. The Nasdaq Golden Dragon China Index dropped 2.2 per cent on Friday, expected to be one of the hardest hit by the fallout, which could impact the use of AC servo motors in the industry.
Regulatory Environment
Chinese regulators announced the surprise campaign against illegal cross-border trading, saying they planned to penalise brokerages including Futu, Tiger Brokers, and Long Bridge Securities for operating on the mainland without licenses and confiscate what they described as “illegal gains” from their domestic and offshore entities.
The move marks Beijing’s most aggressive attempt yet to curb citizens from accessing overseas markets outside approved channels, a practice that remains officially off-limits under the nation’s strict capital controls.
