Stock Connect, a new programme between the Shanghai and Hong
Kong stock exchanges launched on 17 November 2014, creates the
opportunity to trade A-shares listed in Shanghai through the Hong
Kong stock exchange. The opportunities for non-Chinese investors to
trade A-shares were previously strictly limited to a number of
specific quotas. Stock Connect is expected to provide much more
room for foreign investors to trade Chinese securities.
On 4 September 2014, the Shanghai Stock Exchange (SSE) and China
Securities Depository and Clearing Corporation Limited (China
Clear) entered into an agreement with the Stock Exchange of Hong
Kong Limited (SEHK) and Hong Kong Securities Clearing Company
Limited (HKSCC) for the establishment of Shanghai-Hong Kong Stock
Connect. Stock Connect creates a link between the SSE and the SEHK
that enables investors with access to one market to buy and sell
shares listed on the other's market. ChinaClear and HKSCC will
be responsible for the clearing and settlement and other services
related to the trading.
Some companies listed on one of the Chinese stock exchanges
offer two classes of shares: A-shares and B-shares. B-shares are
quoted in foreign currencies (US dollars in Shanghai; Hong Kong
dollars in Shenzhen) and are open to both domestic and foreign
investment. The market for B-shares, however, has remained stagnant
for many years. By contrast, most companies issue only A-shares,
which are only quoted in Chinese Renminbi. Before 17 November 2014,
foreign investors could only buy and sell A-shares through one of
the schemes that were specifically set up for that purpose: the
Qualified Foreign Institutional Investor (QFII) and the Renminbi
Qualified Domestic Institutional Investor (RQFII) schemes. Stock
Connect is an addition to these existing schemes. The most
important advantage of Stock Connect is that it is open to the
whole market rather than to only a select number of approved
investors under QFII and RQFII. Any investor that has a brokerage
account with an eligible broker in Hong Kong will also have access
to the SSE. One of the disadvantages of Stock Connect is that the
trading by foreign investors of A-shares listed on the SSE will be
subject to a daily quota of RMB 13 billion (approximately EUR 1.7
billion) and an aggregate quota of RMB 300 billion (approximately
EUR 38.8 billion). If the amount of buy and sell orders exceeds
either the daily or aggregate quota, then further buy orders will
be rejected, but sell orders will always proceed. Also, Stock
Connect will be limited to secondary trading and will not support
Similarly, from a Chinese perspective, Stock Connect will
provide a much wider platform for Chinese investors to trade
securities listed on the SEHK, in addition to the existing
Qualified Domestic Institutional Investor (QDII) scheme.
It had been announced that Stock Connect would launch on 27
October 2014, but the launch finally took place on 17 November
2014. As many investors seem to wait to see which way the wind
blows, it is questionable whether Stock Connect will really hit the
ground running. But Stock Connect does have the potential of
providing access for foreign investors to PRC equity markets at an
unprecedented scale. We will keep you informed of future updates
regarding Stock Connect. For more detailed information and latest
news, please visit either the SSE or the SEHK websites, where an information book and an FAQ can be found.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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