The Hong Kong stock market has been extremely hot since 2021, with the purchase of Tencent in the north water and the crazy increase of positions in the south by Meituan, which appear frequently in various financial news. However, small partners who are first involved in the Hong Kong stock market always hear from time to time that they have bought Tencent in the north water, and Meituan is crazy about going south to increase their positions, and they often come across such seemingly similar terms as Beishui, Nanshui, Hong Kong Stock Connect, Shanghai Stock Connect, Shenzhen Stock Connect, and so on. for a while, it is inevitable to confuse their respective definitions. Let's sort out the relationship between them together with Niuniu today.

What is the difference between Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect and Hong Kong Stock Connect?

The stock market interconnection mechanism between the mainland and Hong Kong includes four parts: Shanghai Stock Connect, Hong Kong Stock Connect under Shanghai-Hong Kong Stock Connect, Shenzhen Stock Connect and Hong Kong Stock Connect under Shenzhen-Hong Kong Stock Connect. What's the difference between them?

• The Shanghai-Hong Kong Stock Connect is the abbreviation of the Shanghai-Hong Kong stock market interconnection mechanism, which includes two parts: the Shanghai Stock Connect and the Hong Kong Stock Connect.

• The Shenzhen-Hong Kong Stock Connect is the abbreviation of the Shenzhen-Hong Kong stock market interconnection mechanism, which includes two parts: the Shenzhen Stock Connect and the Hong Kong Stock Connect.

The general rules of Shanghai Stock Connect and Shenzhen Stock Exchange are collectively known as Land Stock Link.

The Hong Kong Stock Exchange refers to investors entrusting mainland securities companies to make a declaration to the Stock Exchange through the Securities Exchange Services Company (SPV) established by the Shenzhen / Shanghai Stock Exchange to buy and sell stocks listed on the Stock Exchange within the prescribed scope.

In short, Hong Kong investors can buy Shenzhen stocks or Shanghai stocks through mainland Stock Connect, while mainland investors can buy Hong Kong stocks through Hong Kong Stock Connect.

As for Nanshui, it refers to overseas funds, that is, northward funds, which can go northward to buy A shares such as Maotai; at the same time, the corresponding Beishui refers to domestic funds, that is, southward funds, which can go south to buy Hong Kong stocks such as Tencent. There is a little formula that you can remember skillfully:

Beishui = mainland funds = going south to buy Tencent

Nanshui = overseas funds = go north to buy Maotai

It is worth noting that although the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect complement each other, they adopt a dual-channel independent operation mechanism, corresponding to two different Hong Kong Stock Connect purview, so their Hong Kong Stock Connect shares cannot be sold across each other.

In addition, for mainland investors, although they can buy Hong Kong stocks through the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect, the investment targets are different-the range of Hong Kong stocks under the Shenzhen-Hong Kong Stock Connect is on the basis of the Hong Kong stocks listed under the Shanghai-Hong Kong Stock Connect. The new Hang Seng Composite small-cap Index (which selects stocks with a market capitalization of HK $5 billion or more) is relatively broader.

The scope and inquiry channels of Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect

The target range of the Shanghai-Hong Kong Stock Connect is still very different from that of the Shenzhen-Hong Kong Stock Connect. The range of Hong Kong stocks under the Shanghai-Hong Kong Stock Connect is the constituent stocks of the Hang Seng Composite large-cap Index and the Hang Seng Composite medium-sized Stock Index, as well as A + H shares listed on the Stock Exchange of Hong Kong and the Shanghai Stock Exchange.

The range of Hong Kong Stock Connect shares under the Shenzhen-Hong Kong Stock Connect is based on the existing Hong Kong Stock Connect, adding the constituent stocks of the Hang Seng Composite small share Index (including stocks with a market value of HK $5 billion or more). And A + H shares listed on the Stock Exchange of Hong Kong and Shenzhen Stock Exchange at the same time.

Therefore, compared with Shanghai Stock Exchange, the average market capitalization of Shenzhen Stock Exchange is smaller, the level of trading and activity is higher, the proportion of small and medium-sized stocks of Shenzhen Stock Exchange is higher, and the volatility of investment is stronger and the scope is wider.

The list of targets for the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect is not immutable and will be adjusted regularly to include stocks that meet the rules on the list and screen out those that do not meet the requirements.

The screening rule of Hong Kong Stock Connect is passive screening, which is determined according to four criteria: the constituent stocks of the Hang Seng Composite large Index, the Hang Seng Composite medium Index, the constituent stocks of more than HK $5 billion in the Hang Seng Composite Mini Index, and the H shares of the listed companies with AH shares. Whenever the target of the constituent stocks of the Hang Seng Composite Index is adjusted, the standard of Hong Kong stocks will also be adjusted accordingly.

Therefore, the twice-yearly regular review of the Hang Seng Composite Index is the main time point for the change in the benchmark for Hong Kong stocks. The Hang Seng Index Company sets the end of June and the end of December each year as the data deadlines for regular reviews, and the review will be completed and the results of the review will be announced within the following eight weeks. The effective date of the index adjustment will be on the first trading day after the first Friday in March and September.

Investors can check the changes and the latest list of the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect by visiting the official website of the HKEx:

HKEx: "Shanghai Stock Connect" and "Shenzhen Stock Connect" stock list

What are the advantages of inclusion in the Hong Kong Stock Connect?

The attractiveness of Hong Kong Stock Connect to investors is mainly reflected in:

First, investors can participate in the investment of Hong Kong Stock Connect and carry out more decentralized asset allocation and wealth management.

Second, the opening of the Hong Kong stock market is convenient and fast. Investors in Hong Kong Stock Exchange can use the RMB common stock account in Shanghai stock market to trade without having to go to Hong Kong market to open an account. Business handling is convenient and efficient.

Third, investors in Hong Kong Stock Exchange directly use RMB to settle with securities companies, which avoids the inconvenience of RMB entry and exit, and the investment is not limited by the amount of foreign exchange settlement and exchange equivalent to US $50,000 per person per year.

For stocks, domestic capital, as the most important participating force in the Hong Kong stock market, will be the key force to promote the further strengthening of related stocks, with an average increase of 11.97% in 2019. According to the historical data, the stocks that are included in the stock will probably outperform the index, and the stocks that are excluded will probably outperform the market. For the whole of 2019, the enthusiasm of domestic capital moving south is still high, and the southbound Hong Kong Stock Connect (including the Hong Kong Stock Connect under the Shanghai-Hong Kong Stock Connect and the Hong Kong Stock Connect under the Shenzhen-Hong Kong Stock Connect) has a cumulative net inflow of 222.437 billion yuan, an increase of 231.51% over the same period in 2018. It is worth mentioning that since March 2019, the southbound Hong Kong Stock Exchange has achieved net inflows for 10 consecutive months. Among them, in August, the net inflow of southbound Hong Kong stocks reached 52.889 billion yuan, the second largest monthly net inflow in history.

What kind of stocks will have the opportunity to be included in the Hong Kong Stock Connect?

For mainland investors, the most concerned question must be which Hong Kong stocks can be bought and sold through Hong Kong stocks. And what kind of stocks can be included in the Hong Kong Stock Connect in the future?

The inclusion criteria for the Hong Kong Stock Exchange are as follows:

Hang Seng Composite Index constituent stocks, including Hang Seng Composite large stocks Index, Hang Seng Composite medium stocks Index and Hang Seng Composite small cap Index stocks with an average monthly market capitalization of not less than HK $5 billion at the end of the past 12 months

H shares of A + H shares listed on the Stock Exchange, of which A shares are required to meet the risk warning of the mainland exchange, suspend listing or enter the delisting period.

In addition, according to the revised instructions issued simultaneously by the Shanghai Stock Exchange, the Shenzhen Stock Exchange and the Hong Kong Stock Exchange on August 2, 2019, companies with different rights in the same shares, led by BABA, Meituan and XIAOMI, can be included in the Hong Kong Stock Connect for the first time after meeting the following conditions:

Meet the length of a stable trading period. 6 months after listing plus 20 trading days for Hong Kong stocks

Meet certain market capitalization and liquidity requirements. The average daily market capitalization is not less than HK $20 billion and the total turnover of Hong Kong shares is not less than HK $6 billion in the 183 days before the inspection day (including the day of the study).

Meet compliance requirements. After the stock is listed, the stock issuer and the beneficiaries of different voting rights shall operate in compliance with the regulations.

At present, there are two ways for the underlying stocks to be included in the Hong Kong Stock Connect:

The target has passed the regular half-yearly adjustment / quick transfer to the new transfer to HSCI, and meets the further requirements of the Hong Kong Stock Exchange.

The target is the newly listed A + H shares, and the corresponding A shares have not been warned of the risk, suspended listing or entered the delisting period.

The standard of Hong Kong stocks is not 100% high quality, be careful to avoid lightning!

The Hong Kong stock market standard incorporated through layers of assessment seems to be very "root seedling red", but among them, there is a mixture of fish and dragons, and there is no lack of a sudden collapse of some Hong Kong stock market standard, resulting in heavy losses of many southward funds.

The continuous collapse of a number of Hong Kong stocks last year has given mainland investors a new understanding of investing in Hong Kong stocks. 1269.HK is a vivid example. The first holding group, which was officially included in the Hong Kong stock market on March 2, 2018, had a mediocre initial performance, then suffered capital speculation, and the company's share price doubled in May and June of that year. Share prices plunged 38.68% on June 1, 2018, but Hong Kong Stock Connect held only 932000 shares, less than 1% of the total share capital, and the collapse had little impact on mainland Hong Kong Stock Connect funds. However, by November 26, 1919, Hong Kong Stock Connect had held about 200 million shares in the primary control group. However, on November 27th, the first holding group plunged more than 70 per cent in less than half an hour after it opened trading, and the company applied for a temporary suspension of its shares because it fell too fast. According to a preliminary estimate, the capital of Nanxiaotong, which was about 360 million yuan at that time, lost or exceeded 200 million yuan a day.

The case of the first holding Group is not alone. 51 Credit Card (2051.HK) is another typical case recently. Data show that since March 13, 1919, 51 credit cards for the first time Hong Kong stock holdings, since then the number of shares continued to increase. However, since the existence of Hong Kong stock holdings, 51 credit card shares have gone through a long way of decline, with a cumulative decline of more than 70% in the past eight months, including a flash crash on October 21, 1919, and the share price plummeted 34.69% in one day. Overall estimates, since the Hong Kong Stock Exchange funds involved in the stock, the loss amount of tens of millions of yuan, a huge loss.

In addition to the above cases, there are many cases of capital losses in the mainland caused by the collapse of Hong Kong stock prices, such as Southern Energy and Carson International. Even if it has been included in the general standard of Hong Kong stocks, it does not mean that you can rest easy and be bullish all the way. Investors still need to be very careful and distinguish carefully.