China's regulators loosened the rule that for the first time allow local investors to buy shares of some popular technology companies listed in Hong Kong. Last Monday, the first trading day after the announcement out of China that such stocks would be included on the Stock Connect, Meituan shot up 4.3 per cent and Xiaomi jumped 5 per cent.
Mainland Chinese investors have not been permitted for having access to home-grown tech giants, who usually chose to list elsewhere. Now, the story is different, and it could boost share prices for smartphone maker Xiaomi and online food delivery-to-ticketing firm Meituan Dianping.
"Both Xiaomi and Meituan are household names to the average retail investor in China. Granting these investors access to buy such stocks will definitely benefit the share prices," said Kevin Leung, executive director of investment strategy at brokerage Haitong International, said in interview with South Morning Post.
The shares went on a wild ride since then, with Meituan plunging 6.2 per cent on Tuesday and Xiaomi shedding 1.5 per cent, as skittish investors pulled out with quick profits. Meituan ended the week 1 per cent lower, while Xiaomi gained 6 per cent.
As of this writing, Meituan Dianping is continuing to climb on news it is now available for Chinese Mainland on the Stock Connect. It is up 6.3 per cent to HK$96.30. The food delivery-to-ticketing company has traded in the morning as high as HK$97.15. Chinese smartphone maker Xiaomi also became available to Chinese Mainland today. It has gained 2.4 per cent to HK$9.28.
They are the only two stocks that meet the new criteria to be added to the Connect, including having an average market cap of at least HK$20 billion (US$2.6 billion).
Though, for Xiaomi, whose shares have weathered down 30 per cent this year as it has struggled to create a revenue stream beyond smartphone sales.
Meituan Dianping, in contrast, is up 109 per cent for the year. "The stock price of Xiaomi will probably be explosive initially when it's included in the Stock Connect," said Alan Li, portfolio manager at Atta Capital. "The inclusion is a strong catalyst that will stimulate share prices and elevate valuation levels, even though the surge may not be sustained in the long run." according to South Morning Post.
The inflow could be as much as US$1.4 billion for Meituan Dianping and US$1.6 billion for Xiaomi - equivalent to 11 per cent and 14 per cent of their respective free-float market value - if past behaviour is any guidance, analysts at Goldman Sachs wrote in a report dated October 22.
According to HKEX, Stock Connect is unique collaboration between the Hong Kong, Shanghai and Shenzhen Stock Exchanges, Stock Connect allows international and Mainland Chinese investors to trade securities in each other's markets through the trading and clearing facilities of their home exchange.
