The launch of the Shanghai-Hong Kong Stock Connect scheme sparked expectations that fundamentals-driven institutional investors from Hong Kong would temper some of the speculative impulses of the mainland's retail-dominated markets. That has triggered concern that the influence is moving in reverse toward a "mainlandification" of Hong Kong's stock markets.

The Hang Seng Index jumped 12.5 percent in six trading days during early April as money from the mainland flooded into Hong Kong through the trading link between the two markets. Hong Kong-listed Chinese enterprises surged 18.1 percent in the period.

Hong Kong's share prices have sustained high levels since the launch of the stock connect, which has boosted turnover. The movement in the equity market has shocked some of Hong Kong's local investors, who see a continuous rise in stock prices unsubstantiated by fundamental support.      

Still, the perils may be exaggerated. Shanghai's quota to invest in Hong Kong remains limited. The aggregate quota of the southbound channel is about 0.8 percent of Hong Kong's total market cap, which is about HK$30 trillion ($3.9 trillion) as of June 8. Furthermore, the daily quotas have seldom been used up in the past.

The author is Fielding Chen, a Bloomberg economist.

Bloomberg