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China to let mutual funds buy Hong Kong shares via 'connector': regulator

The Hong Kong skyline is seen from the Peak June 18, 2013. REUTERS/Bobby Yip

BEIJING (Reuters) - China's securities regulator said on Friday it would let mainland mutual funds invest in Hong Kong shares via the Shanghai-Hong Kong Stock Connect.

The move may gave some support to the cross-border trading scheme, which has seen dwindling interest from investors.

Up until now, Chinese mutual funds have been able to invest in overseas markets only through the Qualified Domestic Institutional Investor (QDII) program, which requires regulatory approval.

Giving mainland funds access to Hong Kong shares via the Shanghai-Hong Kong Stock Connect will promote product and business innovation, and be good for steady development of the connect scheme, Deng Ge, spokesman for the China Securities Regulatory Commission (CSRC), told a news conference in Beijing.

The scheme, launched late last year, allows Hong Kong and mainland investors to invest in each other's markets up to a daily quota.

Interest in the scheme has been waning. On Friday, mainland investors used only 5 percent of their quota for Hong Kong shares, while those in Hong Kong utilized only 2 percent of what they could buy on the mainland.

Chinese investors have shown little enthusiasm toward the scheme because investing in Hong Kong shares gives them little asset diversification, but expose them to foreign exchange risks.

Recent bullishness in the mainland stock markets has also made Hong Kong shares less attractive. China-listed companies are on average 35 percent more expensive than their Hong Kong peers (.HSCAHPI), the biggest premium in three and a half years.

(Reporting by Zhang Xiaochong and John Ruwitch; Writing by Samuel Shen; Editing by Richard Borsuk)