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China-H.K. stock connect may lure foreign capital from Korea

The imminent kick-off of the Shenzhen-Hong Kong stock connect is seen as a favorable outbound investment opportunity, but is also raising concerns of capital outflow into the more profitable Chinese market, analysts said Wednesday.

South Korea’s current strategy is to move in step with China and seek shared growth, instead of competing directly with the giant market.

The nation’s stock operator Korea Exchange initiated an exclusive task force to respond preemptively to China’s stock market growth.

“For years, Korea has been an attractive market for foreign investors, especially among emerging Asian states, but with the fast rise of China, this may no longer be the case,” said a KRX official.

According to data by the World Federation of Exchanges, the total market capitalization of China’s stock market as of May last year was almost eight times that of the Korean market. Observers noted that the gap is likely to have widened over the past year.

Through the incoming stock connect, mainland China is seeking to win back New York-listed global companies such as Alibaba and Baidu, in which case the total cap will expand drastically.

Perplexed by the competition, the KRX decided that the best way out is to move along with China’s stock market.

“Considering China’s economic size and growth rate, the incoming stock connect will deliver a visible blow to the Korean stock market,” said the official.

“Our best scenario is to collaborate with the Chinese counterpart and to develop joint investment products, based on our yearslong experience.”

The Hong Kong Stock Exchange recently reiterated its plan to launch the stock connect within the year, beating the pessimistic rumors that the timeline would be delayed to next year.

By Bae Hyun-jung (tellme@heraldcorp.com)
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