The Shanghai-Hong Kong Stock Connect

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Stock Connect is a pilot program that links the Shanghai Stock Exchange and the Hong Kong Exchanges and Clearing Ltd, allowing residents of mainland China to trade shares in Hong Kong for the first time and foreigners to invest in Chinese companies, many of which had been off limits. Trading on Stock Connect began on Monday, November 17, 2014. Foreign investors had been largely shut out of China's financial markets, able only to trade the stocks of certain companies listed in China through a limited program.[1] Even with Stock Connect, foreign investors are still only allowed to trade $2.1 billion daily, a small percentage of the Shanghai stock exchange market capitalization.

On the first day of trading via Stock Connect, traders exhausted the daily limit for buying Shanghai stocks by mid-afternoon.[2] Mainland investors had less of an appetite for the big Chinese and Western companies, however.[3]

Stock Connect was first announced by Premier Li Keqiang of China in April 2014.

The program created a single China stock market that is one of the world's three largest by market cap and daily turnover. It added more than 800 companies of more than $1 billion market cap to the roster of stocks available to international investors.[4]

Charles Li, the chief executive of HKEx, said the plan for the Stock Connect trading link was "to gradually expand mutual market access in an orderly manner" and that the link had the potential to be extended to other products and asset classes, including equity derivatives, commodities, fixed income and currencies.[5]

References

  1. Link Opens Between Hong Kong and Shanghai Stock Markets. The New York Times.
  2. Money flows to Shanghai as landmark stocks link with Hong Kong opens. Reuters.
  3. Missing Link in Shanghai-Hong Kong Stock Connect. The Wall Street Journal.
  4. The Shanghai-Hong Kong Stock Connect. Goldman Sachs.
  5. HKEx eyes extension of China link to trade futures. FOW.