Overview of trading risks of Hong Kong Stock Connect

As an important part of China's capital market opening to the outside world, Shanghai-Hong Kong Stock Connect (hereinafter referred to as Shanghai-Hong Kong Stock Connect) has expanded the investment channels of investors in the two places. Mainland investors can find investment targets for their assets in a wider range.

Although compared with other overseas markets, some listed companies in Hong Kong are familiar to mainland investors, and Hong Kong and the mainland have the same culture, investors may face other special risks besides the same risks as the mainland A-share market because of the differences between the stock trading rules of the Hong Kong Stock Exchange and the mainland A-share trading rules. Therefore, before participating in the Shanghai-Hong Kong Stock Connect investment, we remind investors to master the basic securities knowledge, laws and regulations of the Hong Kong market, understand the business rules of the exchange, fully understand the investment risks of the Hong Kong Stock Connect, and participate in the investment rationally.

Here, we will briefly introduce the possible investment risks caused by the market differences between Shanghai and Hong Kong. Specifically, due to some differences in the investment environment, investor structure and trading objectives between Shanghai and Hong Kong stock markets, mainland investors may face the following risks when participating in the Hong Kong Stock Connect trading:

The first is the risk of market linkage.

Compared with the mainland A-share market, due to the free flow of foreign exchange funds in the Hong Kong stock market, there is a high correlation between the flow of overseas funds and the price of Hong Kong stocks. Therefore, when investors participate in trading in the Hong Kong stock market, they are relatively more vulnerable to the systemic risks brought about by global macroeconomic and monetary policy changes.

Secondly, the risk of stock price fluctuation.

Due to the T+0 trading mechanism in the Hong Kong stock market, and there is no upper limit for price fluctuation, there are relatively rich types of structured products and derivatives in the Hong Kong market. The stock price of Hong Kong Stock Connect is driven by unexpected events, which shows that the stock price fluctuates more sharply than that of A shares, and investors are relatively risky in holding positions.

The third is the transaction cost risk.

At present, when investors participate in the investment in Hong Kong stocks, in addition to the commission, transaction levy, transaction fee, trading system fee, stamp duty, transfer fees and other taxes and fees arising from stock trading, investors may continue to pay portfolio fees and other fees when they do not trade. Therefore, investors should fully understand the relevant tax arrangements that may need to be paid before participating in Hong Kong stock trading, so as to avoid increasing transaction costs due to increased trading frequency.

In addition, there are liquidity risks in individual stocks.

Different from the active trading of small and medium-sized stocks in the mainland market, in the Hong Kong market, the trading volume of small and medium-sized stocks in some Hong Kong stocks is relatively small and the liquidity is relatively lacking. Therefore, if investors hold such stocks in heavy positions, they may face the risk that the stock price will drop sharply due to a small amount of selling due to the lack of counterparty transactions.