Futu News on February 7, today China Securities Registration and Clearing Co., Ltd. issued a business guide for H-share "full circulation", which means that in order to implement the reform of H-share "full circulation" in an all-round way, to clarify the business arrangements and procedures for the relevant share registration, storage, clearing and settlement, the "H-share" full Circulation Business Guide "is now issued and will be implemented from the date of promulgation.

Many friends who do not understand but think this is very powerful will ask, "what is the full circulation of H shares?"

What is the "full circulation" of H shares?

In short, the "full circulation" of H-shares refers to domestic enterprises listed under the H-share structure, converting their unpublicly traded domestic shares into foreign-funded shares and trading them publicly on the Hong Kong stock market.

There are two key points in the full circulation of H shares, one is H shares, and the other is full circulation.

What are H shares?

First of all, let's get to know what H shares are. H shares have two characteristics: one is registered in mainland China, and the other is listed on the Hong Kong Stock Exchange.

So what is full circulation?

The shares of H-share companies are divided into foreign-funded shares and domestic-funded shares, which can be circulated on the Hong Kong Stock Exchange, while domestic-funded shares (here, legal person shares and state-owned shares held by mainland enterprises) cannot be circulated on the Hong Kong Stock Exchange. can only be transferred between Chinese legal persons or natural persons, qualified foreign institutional investors or strategic investors. Full circulation means that all domestic shares are converted into H shares and traded on the Hong Kong Stock Exchange.

The significance of full circulation of H-shares

1. Expand the market value of Hong Kong shares in circulation
At present, about 160 H-share companies meet the conditions for full circulation, with a market capitalization of HK $1.64 trillion, and there will be newly listed H-share companies in the future. these H-share fully tradable shares will be listed and circulated on the Hong Kong Stock Exchange. Therefore, the reform of H-share full circulation is beneficial to expand the market value of H-share circulation.

2. Shareholders' interests are more consistent.
The major shareholders of H shares listed can not reduce their holdings, nor can they pledge their shares, and they can get very little income from the stocks, so the major shareholders have the problem of inaction. After H shares are fully circulated, the shares of major shareholders can also be listed and circulated, and the rights of different shareholders are truly the same.

Scope of application of full circulation of H-shares

The following types of shares of H-share companies or companies intending to apply for initial public offering of H-shares may apply for H-share "full circulation":

First, domestic shares held by domestic shareholders before overseas listing, second, additional domestic shares issued in China after overseas listing, and third, unlisted tradable shares held by foreign shareholders. At this stage, the "full circulation" shares are listed on the Stock Exchange of Hong Kong.

It is worth noting that the reform only involves single H-share companies listed only on the Hong Kong market, and all the relevant domestic unlisted shares will be listed and traded on the Hong Kong Stock Exchange after they are converted into H-shares. A + H-share companies do not involve the issue of "full circulation".

What should investors care about?

First, is there a corresponding compensation mechanism for the non-tradable share structure reform such as the full circulation of H shares?

After all, for the vast majority of enterprises, the cost of holding shares from state-owned shares or corporate shares and institutional original shares is too low, once parity is liberalized, it may undoubtedly mean a huge and unequal difference in shareholding costs for shareholders in the secondary market.

Second, will the arrival of the full circulation of H shares have a major impact on the stock price?

After all, most companies have twice as many non-tradable shares as free-floating shares, which undoubtedly means huge selling pressure.

Third, will it lead to a change in the control of the underlying company, thus changing the company's business direction and strategy, and ultimately affect the performance of the company?

Because full equity circulation means that equity will be determined by the market in most cases, this gives the barbarians outside the door some opportunities to come in and raise their cards.

How to arrange the full circulation of H shares

As we mentioned earlier, the full circulation of H shares has expanded the market value of Hong Kong shares, which has greatly stimulated the vitality of the H share sector and enhanced the liquidity of Hong Kong stocks, which is directly good for the Hong Kong Stock Exchange.

In addition, the full circulation of H shares ostensibly increases the stock supply and forms a negative effect on the stock price, but the deep impact is that after the full circulation of H shares, the stock price is closely related to the major shareholders, do a good job in the performance of the enterprise and magnify the enterprise value through the price-to-earnings ratio. therefore, more than 160 pure H-share enterprises are worthy of attention. However, more than 160 enterprises have a wide range of choices, and we can choose targets with a low price-to-earnings ratio and a market capitalization of more than 1 billion of Hong Kong stocks.