Shanghai-Hong Kong Connect: China’s big game changer

“An important horizon [has] opened up on the global investment landscape,” says Leo Lewis in The Times: domestic Chinese stocks.

Shanghai-listed shares (known as A-shares, to distinguish them from Hong Kong-listed mainland firms or H-shares) have hitherto been largely inaccessible for foreign investors.

But now anyone purchasing stocks in Hong Kong (open to all foreign investors) will be allowed to buy into 500 or so A-shares, with a total market capitalisation of around $1trn.

At the same time, Chinese retail investors will be given access to Hong Kong shares. There will be a daily quota of around $35bn of cross-border equity purchases.

The Shanghai-Hong Kong Connect programme is a “big game changer”, as Christina Ma of Goldman Sachs put it.

Not only can foreigners now enter the world’s fifth-biggest stockmarket, but index providers such as MSCI will be more inclined to cover China, thus bringing in money from funds that invest in Asia.

All this, along with cheap valuations, helps explain why the Shanghai Composite index has gained 17% this year.

Investors expect the scheme to expand to the Shenzhen stock exchange in due course. Shanghai and Shenzhen together form the biggest stockmarket outside the US.

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