(Yicai Global) Dec. 10 -- The Shanghai, Shenzhen and Hong Kong stock exchanges have agreed to a detailed arrangement for the inclusion of dual-class shares in their respective stock connect programs and aim to have rules letting mainland investors buy into Hong Kong-listed companies around the middle of next year.
The trio announced their plans in a joint statement yesterday.
China's A-share market of domestic shares will further open to growth-oriented high-tech companies, which can help prepare the launch of the Shanghai Stock Exchange's new sci-tech board and is important for the A-share market's further opening and reform, insiders told Yicai Global.
"I believe that the science and tech board may also include companies with weighted voting rights. This is possible to achieve in future, if unlikely in the first pilot phase," Fu Lichun, research director of Changchun-Jilin province-based brokerage Northeast Securities told Yicai Global. The trend will be for WVR firms to go public on the new board, he feels.
As the proposed new tech board must be able to include the dual-class share structure and access for mainland investors to Hong Kong dual-class shares, this shows it will also welcome such stocks in future, Dong Dengxin, director of the Institute of Financial Securities of Wuhan University of Science and Technology, told Yicai Global.
Hong Kong and mainland regulators have now accepted and recognized the legitimacy of the dual-class share structure, Dong believes.
"This shows the adjustment of the mainland market's regulatory policy, the reform of which is towards inclusivity and openness," he said.
Such insiders also expect relevant trading rules to come on line soon.
Companies with dual-class shares, or weighted voting rights, issue stock with different degrees of voting power -- typically to ensure founders retain control without having to hold the bulk of shares after going public. They are common among tech firms and startups.
Hong Kong changed its rules to allow companies with this structure to list in April, as it vied to lure top tech firms away from the mainland and US. Some saw it as the biggest change in the bourse's 25 year history, but mainland officials wanted to keep those stocks out of the Shanghai and Shenzhen-Hong Kong stock links, as local investors needed time to get up to speed with what makes WVR firms tick.
Mobile internet behemoth Xiaomi and Meituan Dianping, the world's largest on-demand services provider, both listed in Hong Kong, respectively in July and September, following the rule change, and look set to become targets for southbound traders -- those on the mainland who buy Hong Kong-listed stocks -- once the three bourses finalize rules for dual-class share trading.
Both these companies' stocks have tumbled since their initial public offerings. Beijing-based Xiaomi [HK:1810] has lost almost 22 percent to date, while fellow Beijinger Meituan [HK:3690] has also shed about that amount.
Editor: Ben Armour