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Bloomberg

Most stocks in Shanghai climbed versus their Hong Kong counterparts as global investors met the daily limit for buying mainland equities allowed through the China exchange link that started today.

Kweichow Moutai Co. and SAIC Motor Corp. each advanced at least 1.8 percent after the link gave overseas investors access to mainland consumer companies. Daqin Railway Co. jumped 6.2 percent after Goldman Sachs Group Inc. and Standard Chartered Plc recommended the shares. Hong Kong Exchanges & Clearing Ltd. slumped 4.5 percent as mainland investors left the buying quota for the city’s shares largely unfilled. Tencent Holdings Ltd. declined 2.1 percent.

More than two shares rose for each that fell on the Shanghai Composite Index, which declined 0.2 percent to 2,474.01 at the close. Hong Kong’s Hang Seng China Enterprises Index lost 1.9 percent, the biggest slide in two months. The daily quota of 13 billion yuan ($2.12 billion) for foreign investors buying China shares was filled, compared with 17 percent of the 10 billion yuan south-bound limit.

“It’s a good start for the Shanghai connect,” Dai Ming, a fund manager at Hengsheng Asset Management Co. in Shanghai, said by phone today. “It looks like overseas investors favor stocks without Hong Kong listings and those with high dividend yields” such as SAIC.

The CSI 300 Index slipped 0.5 percent, while the ChiNext gauge of small-company shares jumped 2.1 percent. The Hang Seng Index dropped 0.9 percent. The Hang Seng China AH Premium Index rose 0.6 percent to 102.14 as mainland dual-listed shares widened their premium to their Hong Kong counterparts.

Consumer Shares

Kweichow Moutai, the nation’s biggest liquor maker, surged 1.8 percent. SAIC Motor added 3.2 percent to pace gains for consumer companies reliant on economic growth. The shares have a 6.2 percent dividend yield, compared with the benchmark one-year bank deposit rate of 3 percent. Daqin Railway Co., which has a yield of 4.5 percent, rallied 6.2 percent to the highest level since April 2010.

“Yields are obviously more attractive to the international community than retail-focused A-share investors focused on growth and news-flow driven stories,” said Robert Buckley, the managing partner for Asia at Aviate Global LLP.

Today’s debut of the bourse link marks one of China’s biggest steps toward opening up its capital account, increasing global use of the yuan and turning Shanghai into an international financial center. The quota system, which caps aggregate net purchases at 300 billion yuan in Shanghai and 250 billion yuan in Hong Kong, allows Chinese authorities to retain some control over cross-border money flows even as they broaden access to the biggest emerging market.

Taking Profits

Some 81 percent of brokers surveyed by Bloomberg News on Nov. 14 predicted the quota for Shanghai shares would be used up on the first day. Half of those surveyed forecast the same result for Hong Kong purchases.

“Everybody was expecting this day and now there’s some profit-taking on good news, particularly for stocks related to the link program like HKEx and some Chinese securities companies, and A-H premium shares,” said Ben Kwong, a director at KGI Asia Ltd., which is participating in the link. ‘It’s a very big event but it’s just the first day. There’s of course room for improvement.’’

About 77 percent of mainland investors surveyed by CLSA Ltd. in August said they wouldn’t participate in the link. Their lack of interest in Hong Kong shares contrasts with traders’ growing appetite for mainland stocks, which are luring record inflows through exchange-traded funds. Hurdles include the 500,000 yuan minimum account size for mainland investors to participate in the link, and the exclusion of small-cap stocks, favored by speculative traders for their high volatility, according to CLSA and Aviate Global LLP.

HKEx Drops

Bourse operator Hong Kong Exchanges & Clearing dropped the most in three weeks as trading volumes disappointed. The stock had gained 40 percent through last week since the exchange link was announced in April. Haitong Securities Co., China’s second- largest brokerage, slumped 6.1 percent in Hong Kong and fell 2.7 percent in Shanghai. A gauge of financial shares in the CSI 300 slid 1.7 percent for the steepest loss among the industry groups. Citic Securities Co. and China Life Insurance Co. both dropped 2.7 percent.

Chinese exchange-traded funds rallied in the U.S. on Nov. 14, with Deutsche Bank’s X-trackers Harvest CSI 300 China A- Shares ETF jumping 3.3 percent. China said after local markets closed it will give foreign investors a temporary exemption on capital gains taxes, clarifying rules before the program’s debut provides unprecedented access to mainland shares.

Tax Waiver

Foreign investors using the Shanghai-Hong Kong connect to buy yuan-denominated A-shares will be “temporarily” exempt from capital-gains tax, China’s Ministry of Finance announced. Institutions already investing in Chinese markets through the so-called QFII and RQFII programs will also get a tax waiver, the ministry said, without giving a time frame for the exemption.

Signs of a weakening Chinese economy were also limiting gains. Data released after the Nov. 14 market close showed the nation’s broadest measure of new credit missed economist estimates in October, suggesting liquidity injections from the central bank haven’t been enough to spur a pickup in lending. Chinese banks’ bad loans rose to the highest level since 2008 in the third quarter as a property slump and an economic slowdown boost the odds that soured credit will keep climbing.