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November 18, 2015

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Shanghai-HK Stock Connect marks steady run on first anniversary

THE Shanghai-Hong Kong Stock Connect has operated steadily since its launch a year ago, despite the crisis in the mainland’s stock market in summer.

Shanghai stocks have attracted 121 billion yuan (US$19 billion) through the scheme, about 40 percent of the 300 billion yuan aggregate quota, with trading hitting 1.54 trillion yuan, according to the Shanghai Stock Exchange.

Hong Kong stocks have drawn 92.4 billion yuan under the scheme, about 37 percent of the 250 billion yuan annual quota, with transactions at HK$742 billion (US$95.7 billion), according to Hong Kong Exchanges and Clearing Ltd.

“But the focus should not be on aggregate quota usage or trading turnover, because the stock connect is much bigger than that: it’s a catalyst, and a model, for the future,” Charles Li, chief executive officer of HKEx, said on the first anniversary of the program.

“It unlocked a door to the Chinese mainland, and in future will likely be seen as the precursor to a new generation of cross-border regulatory cooperation and market connections,” he added.

The stock connect provided a model which can be copied in the future for the internationalization of the Chinese capital market, said Huang Hongyuan, general manager of the Shanghai Stock Exchange.

Its performance may pave the way for the anticipated Shenzhen-Hong Kong Stock Connect.

But the HKEx said that it has not reached any agreement on the establishment of the Shenzhen-Hong Kong stock link.

The announcement came after central bank Governor Zhou Xiaochuan said in an article published on November 3 that China will launch such a program within the year, which propped up stocks both on the mainland and in Hong Kong.

The People’s Bank of China said on November 4 that Zhou’s article was a speech delivered to central bank officials on May 27, before the start of the stock market rout in mid-June, which analysts assumed would delay the launch of Shenzhen-Hong Kong link.

There is still a lot of room for improvement in the stock connect, in terms of new products, expanded quotas, enlarged stock eligibility criteria, said Li, adding that he is also excited about the Shenzhen connect, which will open up another Chinese mainland market for international investors.

China’s A-share market in Shanghai and Shenzhen is home to about 2,700 companies, with a combined value of about 51.97 trillion yuan as of yesterday, while the combined daily trading volume on the two exchanges exceeded 1.27 trillion yuan.

Before the launch of Shanghai-Hong Kong Stock Connect, yuan-denominated A shares traded on the Chinese mainland were only available to foreign investors via two quota systems — the 2003 Qualified Foreign Institutional Investor and 2011’s Renminbi Qualified Foreign Institutional Investor.


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