Shanghai-Hong Kong stock exchange link-up heralds new era of international trade

BY Fraser Tennant

Hailed as ‘historic’ and ‘a landmark’, the link-up between the Hong Kong and Shanghai stock exchanges has well and truly opened the floodgates, with billions of dollars set to flow in and out of mainland China – the world’s second-largest economy.

Officially known as the Shanghai-Hong Kong Stock Connect, the new trading platform is expecting to see US$3.8bn a day being generated in cross-border transactions. Many hedge funds, banks, brokerage firms and big institutional investors are waiting in the wings to get their piece of the action.

These international investors purchased 13bn yuan (US$2.1bn) of Shanghai shares on the opening day of the link-up (maxing out the daily limit), while mainland investors got through 1.4bn yuan of the 10.5bn yuan quota in Hong Kong.

While the Hong Kong-Shanghai link is a major step in opening up China’s financial markets, which until now had largely been closed to foreign investment, major trade restrictions, such as the daily US$2.1bn limit on buying stocks, remain.

"It's really the beginning of a new era," said Charles Li, Hong Kong Exchanges chief executive.  “The link is a massive bridge, a massive road. It is going to be here not for days, not for weeks, not even for months, it is going to be here for years and decades."

Others are more circumspect.

Investor Wang Chenyu said “The Shanghai-Hong Kong Stock Connect offers a limited scope of shares for trading and it has investment quotas. It does not have any special advantages."

Castor Pang, head of research at Core Pacific-Yamaichi, added “Mainland investors will have to get used to the trading system. Right now it's the wait and see attitude.”

Although early trading on the Shanghai-Hong Kong Stock Connect has gone smoothly, demand has dropped somewhat since the opening day extravaganza. Thus far, Chinese investors have shown little interest in Hong Kong-listed stocks, while international investment into China has slowed markedly since first day trading.

Whether this proves to be the norm, a sign that the link-up has been overhyped, is too early to say.

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