China Stock Connect

Risks of investor assets received or held outside Hong Kong

Investor assets received or held outside Hong Kong are subject to the applicable laws and regulations of the relevant overseas jurisdiction which may be different from the Securities and Futures Ordinance (Cap. 571, the Laws of Hong Kong) and the rules made thereunder. Consequently, such investor assets may not enjoy the same protection as that conferred on investor assets received or held in Hong Kong.

Not protected by China Securities Investor Protection Fund

According to the Measures for the Administration of Securities Investor Protection Fund 《證券投資者保護基金管理辦法》, the functions of China Securities Investor Protection Fund (CSIPF, 中國投資者保護基金) include "indemnifying creditors as required by China's relevant policies in case a securities company is subjected to compulsory regulatory measures including dissolution, closure, bankruptcy and administrative takeover by China Securities Regulatory Commission (CSRC) and custodian operation" or "other functions approved by the State Council". As far as Hong Kong investors participating in Northbound Trading are concerned, since they are carrying out Northbound Trading through securities brokers in Hong Kong and these brokers are not Mainland brokers, therefore they are not protected by CSIPF on the Mainland.

Quotas used up

Once the relevant Daily Quota is used up, acceptance of the corresponding buy orders for SSE Northbound Trading or SZSE Northbound Trading (as the case may be) will also be immediately suspended and no further buy orders for the relevant market will be accepted for the remainder of the day. Buy orders for the relevant market which have been accepted will not be affected by the using up of the relevant Daily Quota, while sell orders will continue to be accepted. Buying services will be resumed on the following trading day.

Trading day and trading hours

As mentioned above, Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect will only operate on days when both the Hong Kong and Mainland markets are open for trading and when banks in both markets are open on the corresponding settlement days. So it is possible that there are occasions when it is a normal trading day for the Mainland market but Hong Kong investors cannot carry out any A-share trading. Investors should take note of the days Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect are open for business and decide according to their own risk tolerance capability whether or not to take on the risk of price fluctuations in A-shares during the time when Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect are not trading.

In addition, there is difference in trading hours between the Mainland and Hong Kong stock markets. Trading hours for A-shares under Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect is different from Hong Kong and investors shall beware of such difference.

Restrictions on selling imposed by front-end monitoring

For investors who usually keep their A-shares outside of their brokers, if they want to sell certain A-shares they hold, they must transfer those A-shares to the respective accounts of their brokers by the end of the day immediately preceding the target trading day. If they fail to meet this deadline, they will not be able to sell those A-shares on the target trading day.

The recalling of eligible stocks

When a stock is recalled from the scope of eligible stocks for trading via Shanghai-Hong Kong Stock Connect or Shenzhen-Hong Kong Stock Connect for above-mentioned reasons, the stock can only be sold but restricted from being bought. This may affect the investment portfolio or strategies of investors. Investors should therefore pay close attention to the list of eligible stocks as provided and renewed from time to time by SSE, SZSE and SEHK.

Mainland market risk

(a) Market volatility risk: The Mainland stock market is relatively volatile as it is mostly made up of retail investors who tend to be speculative and susceptible to the central government policies and news.

(b) Macro-economic risk: There is a close relationship between the Chinese economy and stock market performance. The Chinese economic growth is still above the global average, but has already shown signs of slowdown. Moreover, there is growing concern over the country's government and corporate debts.

(c) Currency risks: Hong Kong investors will be exposed to the risk of RMB exchange rate movements if they have to convert HKD into RMB for trading in Shanghai and Shenzhen A-shares. The conversion also incurs costs.

Movements in the RMB exchange rate will affect the profits and debts of the Mainland listed companies. Such effects will be more significant to those export-oriented companies and companies having debts denominated in currencies other than RMB.

(d) Policy risk: Central government's economic and financial policies will affect the performance of investment market. Investors shall beware of the central government policies for stimulating the economy or supporting different industries, as well as their different financial policies in respect of the currency, interest rate, credit and stock markets.

Risks of investing in companies listed on the ChiNext Board of SZSE ("ChiNext Companies")

Certain eligible A-shares under Shenzhen Connect are listed on the SZSE's ChiNext Board, which will be limited to the institutional professional investors at the initial stage of Shenzhen Connect. Generally, stocks listed on ChiNext Board contain higher risk than those listed on the SZSE Main Board.

(a) Regulatory risk: The rules and guidance on listing, trading, disclosure and other matters of ChiNext Board vary much from those of the SZSE Main Board and SME Board. For instance, the listing requirements of ChiNext Board are less stringent than the SZSE Main Board and SME Board, e.g. requiring a shorter track record period and lower net profit, revenue and operating cash flow. Moreover, the disclosure rules applied to the ChiNext Board are different from the SZSE Main Board and SME Board. For example, ad hoc reports of ChiNext companies are only required to be published on a CSRC designated website and on the issuers' website. If investors continue to check information through the usual disclosure channels for the SZSE Main Board and SME Board, they may miss out some important information disclosed by ChiNext companies. Therefore, investors are advised to closely monitor announcements and risk alerts of ChiNext companies, be aware of market risks, and comply with relevant rules and regulations while trading in the ChiNext market.

(b) Operating risk: Companies listed on ChiNext Board are generally in the early stage of development and have a shorter history, whose business is smaller in scale, unstable, profitability is low, and less resilient against market and industry risks. Operating risks experienced by these companies often include technical failure, new products not well-received by the market, failure to catch up the market development and any changes in the founder, management team and core technician team.

(c) Delisting risk: Compared to the SZSE Main Board, the proportion of companies delisting is higher on the ChiNext Board and such delisting process may be speeded up. In addition, the shares of ChiNext companies may be delisted immediately after SZSE determines its delisting. Investors will not be able to trade in delisted shares, and may lose all the invested capital in this case.

(d) Fluctuation in stock price: As companies listed on ChiNext Board are relatively small and their business performance are unstable, they are more vulnerable to speculation. Share price of the ChiNext stocks is more volatile. ChiNext companies with low public float may be vulnerable to manipulations by major shareholders. The unstable financial result also adds the difficulty to the company valuations.

(e) Technical risk: Companies listed on ChiNext Board are mainly high technology companies, whose success is subject to technical innovations. However, these companies are exposed to the risks and challenges relating to technical innovation, such as high R&D costs, technical failure, and rapid development and replacement in technology and product market.

(f) Risks relating to valuation: Generally, it is difficult to estimate the value of a company listed on ChiNext Board as they are in the early stage of development with short operating history and unstable profits and cash flow. Therefore, traditional valuation method, such as price-to-earnings ratio and price-to-book ratio, is difficult to be applied.

Securities Services Risk Disclosure:

Investment involves risks. The prices of securities fluctuate, sometimes dramatically. The price of securities may move up or down and may become valueless. Losses may be incurred rather than profits made as a result of buying and selling securities. Customers should carefully consider whether the investment products or services mentioned herein are appropriate for them in view of their investment experience, objectives and risk tolerance level, and read the terms and conditions of relevant Securities Services before making any investment decision. For the details of Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect, please refer to the relevant promotional materials which include the risk of investment via Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect.

Currency Risk Disclosure:

Exchange of renminbi (RMB) to HKD or other currencies is subject to currency exchange rate fluctuation. Customers should bear the risk of RMB exchange rate fluctuations which may cause profit or loss if customer chooses to convert RMB to HKD or other currencies. RMB is currently subject to exchange controls imposed by the PRC government, the exchange rate may be easily affected by change in government policies.

Unless the context requires otherwise, this webpage does not constitute any offer, invitation or recommendation to any person to enter into any securities transaction nor does it constitute any prediction of likely future movements in prices of any securities.

This webpage has not been reviewed by the Securities and Futures Commission or any regulatory authority in Hong Kong.

This service / product is not targeted at customers in the European Union.