Hong Kong's Hang Seng China Enterprise Index rose 8.7% a week ago on news Chinese mainland investors were going to be allowed to invest US$50,000 each in Hong Kong-listed stocks. The expectation is that some of the US$2.3 trillion worth of funds ICEA Securities Asia says is tied up in boring savings accounts will find its way across the border. Jun Ma at Deutsche Bank told Dow Jones' MarketWatch "it is labeled as a pilot program, but in practice it is close to a national program", because virtually anyone will be able to open an account with the Tianjin branch of the Bank of China, the branch officially handling it. On the one hand, this is great news for Singapore, because if the Chinese next allow their citizens to buy shares in Singapore there will likely be substantially more liquidity in SGX-listed stocks, presumably specifically China stocks listed here. On the other hand, this will also dilute the say local investors have in the affairs of locally listed companies.

Assuming the Chinese authorities allow their citizens to invest the same amount of funds in Singapore Exchange-listed stocks – as the SGX should be actively lobbying them to do – it doesn't take a lot of calculations as to the impact this could have. Conservatively, if 10,000 mainland investors bought US$50,000 worth of SGX-listed stocks, this would see S$780 mln worth of funds coming in, more than a third of the trading volume yesterday. This would be a huge boon for companies looking to raise funds here. Arguably, more foreign companies wanting to attract investments would list in Singapore (and Hong Kong), knowing that investors from the mainland will be able to back them.

At the same time, the moods and trades of mainland investors will exert greater influence over local stock prices. Also, companies with a growing number of shareholders from the mainland will understand the importance of building good relations in that country. Perhaps we will see annual general meetings being held in China, rather than locally, in the same way that some New Zealand firms hold their AGMs in Australia because their shareholder base is there. Already, CEOs from many China companies fly to Singapore just for their earnings announcements. If their audience was predominantly on the mainland presumably fewer would make such trips here.

Assuming shareholder registries of local and Chinese companies would be increasingly dominated by mainland investors, the voice of Singaporean investors in these firms would be diminished. Their influence on companies would diminish with them. Over time we may see that even local companies will act increasingly in the interests of their large investor base on the mainland.

It's impossible to forecast the long term implications. However, as good as the influx of liquidity would be for local investors and the market as a whole, they deserve some thought and debate.

After all, how many Singaporean investors would travel to China to attend AGMs and earnings briefings of locally-listed companies?

Mark Laudi