China has confirmed that a much-anticipated stock trading link between Hong Kong and Shanghai will be launched on 17 November. A joint statement by the regulators allayed fears that the scheme would be subject to lengthy delays.
The move gives foreign investors unprecedented access to China’s US $4.2 trillion stock market and will allow a net 23.5bn yuan (CNY) (US$3.8bn) of daily cross-border purchases to begin from next week.
The exchange link, titled Stock Connect, represents a major step by China toward opening up the capital account, increasing use of CNY and transforming Shanghai into an international financial centre. It will give foreign investors greater access to Chinese companies tied to the nation’s consumer market, which President Xi Jinping is counting on to reduce the dependence of the world’s second-largest economy on exports and infrastructure spending.
“This is something that has never been tried before,” said Charles Li, chief executive of the Hong Kong exchange, who likened the mechanism set up in response to different market rules and legal systems to an electrical adaptor plug handling different voltages.
Brokers originally expected the link to start at the end of last month, after regulators signaled in April that it would begin in six months. While officials haven’t commented on reasons for the delay, some investors believed that the authorities were waiting for an easing of pro-democracy protests in Hong Kong.
Should Stock Connect pilot be a success, market participants expect the initial quotas to be widened and more exchanges – and potentially products – added. A Shenzhen equivalent of the Shanghai-Hong Kong link will probably follow within two years, letting more foreign investors buy shares on China’s smaller exchange, according to Bank of America Corp.
However, a London summit on the industry’s introduction of the technology cautions that testing and acceptance are still at an early stage and firms should proceed with caution.
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