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Abu Dhabi, UAEWednesday 19 September 2018

China plans stock trading link-up with London this year

Beijing will also raise the daily limit for net buying to Hong Kong using the stock connects to 42bn yuan from 10.5bn yuan on May 1

The London Stock Exchange. China plans to link the LSE with Shanghai bourse. Neil Hall/Reuters
The London Stock Exchange. China plans to link the LSE with Shanghai bourse. Neil Hall/Reuters

China is aiming to start a stock trading tie-up between Shanghai and London this year, according to a top official, creating a system that would give investors in the world’s most populous country direct access to shares listed in the UK.

The timing was announced by People’s Bank of China governor Yi Gang at a panel discussion during the Boao Forum for Asia on Wednesday, unveiled as part of a broader package of policies that will further open up the nation’s financial sector. The programme with London Stock Exchange (LSE) would be the third system to give foreigners access to the mainland equity market, the world’s second-biggest by value. A link between Shanghai and Hong Kong started in November 2014, and a connect between the former British colony and Shenzhen’s bourse opened in December 2016.

An agreement for some sort of connection between London and Shanghai exchanges has been in the works since at least September 2015, when plans were disclosed during a visit to China by then-UK Chancellor of the Exchequer George Osborne. In November 2016, LSE and the Shanghai bourse agreed to “develop rules and implementation arrangements”.

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The link’s importance is symbolic, as UK investors already have access to mainland shares through the Hong Kong links and Chinese traders can use offshore subsidiaries of domestic brokerages to buy stocks in London, said Huang Dongsheng, Shanghai-based head of research at Weifang Fund, which manages more than 4 billion yuan (Dh2.33bn). But, he said, “the programme signifies that China’s deepening its opening-up effort and its push to make the yuan a global currency”.

While details of the programme are yet to be revealed, Xavier Rolet, former chief executive officer of LSE, said in a November 2016 interview with the South China Morning Post that the link to London “would be completely different from the stock connect between Hong Kong and Shanghai.” The system would be a “new concept of stock connect” that would allow Chinese investors to trade stocks listed in London outside of UK trading hours, he said.

Mr Yi also said China would raise the daily limit for net buying to Hong Kong using the stock connects to 42bn yuan from 10.5bn yuan on May 1. The daily northbound quota will be raised to 52bn yuan from 13bn yuan, he said. Investors are expecting increased use of the links when Chinese-listed stocks are added to MSCI’s global emerging markets index in June. The system has seen the daily limit hit just three times: northbound on November 17, 2014, the day the Shanghai programme started, and southbound on April 8 and April 9, 2015.

Hong Kong Exchanges & Clearing, which administers the southern end of the connects, rose 3.1 per cent in morning trading, its biggest gain since February 26. Chief executive Charles Li welcomed the quota increase. “We appreciate that the regulators have been responsive to evolving market needs,” he said.

“I’m surprised to see China expanding the daily quotas so soon and by that much,” said Banny Lam, head of research at CEB International Investment. “This sends a signal from the officials: we are really opening up the market and proceeding quickly.”

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