$32B in Hong Kong Assets Targeted in Trade Crackdown: Citic

Hong Kong’s stock market may see limited impact from China’s crackdown on illegal cross-border trading, affecting up to HK$250 billion in assets. New rules restrict certain brokerages but are considered manageable.

Key Points

• Impact and Scope:

  • Hong Kong’s stock market may react to mainland China’s crackdown on illegal cross-border trading, impacting up to HK$250 billion of assets.
  • The campaign affects HK$150 billion to HK$180 billion in assets from Chinese investors at Futu Securities, with up to HK$50 billion at Tiger Brokers and more at Long Bridge Securities.

• Asset Details:

  • Affected assets include stocks, cash, money-market funds, and options.
  • Potential adjustments may occur if traders legalize their Hong Kong accounts.
• Regulatory Actions and Market Response:
  • CSRC punished Futu, Tiger Brokers, and Long Bridge for unlicensed trading access, confiscating gains and halting stock purchases for two years.
  • Short-term market impact is deemed manageable.
  • The crackdown is an escalation of a campaign started in late 2022.

On Tuesday, investors will observe the responses of Hong Kong’s stock market to mainland China’s crackdown on illegal cross-border securities trading. Citic Securities projects that around HK$250 billion (US$31.9 billion) in assets might be impacted, although this represents a minor portion of Asia’s third-largest stock market. The enforcement largely targets mainland Chinese investors using Hong Kong accounts with brokerages like Futu Securities International, potentially affecting HK$150 billion to HK$180 billion in assets. An additional HK$45 billion to HK$50 billion at Tiger Brokers may be affected, along with other brokerages like Long Bridge Securities.

The crackdown includes stocks, cash, money-market funds, and options. The total impact could lessen if traders modify their account identities to comply with regulations, according to Citic Securities’ chief financial analyst, Tian Liang. Tian suggests that while the short-term impact on Hong Kong’s market is manageable, the scale of affected assets reflects the severity of the regulatory measures.

Triggered by the China Securities Regulatory Commission (CSRC), the crackdown involves sanctions on Futu, Tiger Brokers, and Long Bridge for granting mainland investors overseas stock access without proper licenses. Gains from these trades have been confiscated, and the entities must rectify illegal accounts within two years. During this period, buying is restricted, while selling is permitted.

This enforcement is an extension of a campaign begun in late 2022, initially restricting unlicensed trading by preventing firms like Futu from adding new mainland clients. The escalation signifies a comprehensive effort to regulate cross-border trading practices rigorously.

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