Fund managers have voiced confidence that the direct stock-trading link between Shanghai and Hong Kong will gather speed after muted volumes in its opening week.

The Shanghai-Hong Kong Stock Connect was officially launched on November 17. While volumes hit the daily cap of Rmb13.5 billion ($2.2 billion) on the first day, they were muted for the next four days, as they were for southbound trading throughout the entire week.

Francois Perrin, head of equities for Greater China at BNP Paribas Investment Partners, said the lacklustre opening was partly a reflection of the state of readiness of long-only fund managers.

Hong Kong’s Securities and Futures Commission (SFC) and the China Securities Regulatory Commission (CSRC) jointly announced the scheme on November 10 – just seven days ahead of launch.

“Activity during the first week of the Connect was mainly driven by hedge fund activity closing arbitrage positions or starting to position the money on more scarcity A-share plays,” said Perrin.

“Long-only funds have been dramatically absent. This is not due to a lack of research, trading and operations preparation, but more the reflection of some legal hurdles still faced by long-only managers.”

He noted that the US’s 40-Act regulation (requiring daily liquidity and placing restrictions on performance fees) was hampering the ability of US-based mutual funds to participate actively in Stock Connect.

“This is due to the integrated custodian/broker model required to benefit from the Connect, at least in the coming weeks,” Perrin said.

In Europe, Luxembourg regulator CSSF was still looking at the launch of Stock Connect and the implications for unresolved issues for the retail fund management industry, he added.

However, noted Perrin, “Rome was not built in one day. Investors should keep in mind this adage when looking back at the start of Stock Connect.”

He suggested that the success of Stock Connect would be driven the inclusion of China’s A-share market in MSCI’s emerging market index series, due for review next year. “We are confident that in the coming weeks and months, activity will progressively ramp up.”