The long-awaited Shanghai-London Stock Connect is expected to further increase foreign investors’ access to China’s guarded financial sector. The Shanghai-London connection, which allows investors in London to trade stocks in Shanghai and vice versa, will follow the opening of two similar trading links between the Hong Stock Exchange and the bourses in Shanghai and Shenzhen. Since the launch of the Shanghai-Hong Kong Stock Connect in 2014, global investors have been able to trade more than 2,000 eligible Chinese equities via the stock connects between the Chinese mainland and Hong Kong, with daily trading volumes in the billions of yuan, according to the Hong Kong Stock Exchange.
As of last month, 11.27 billion yuan ($1.65 billion) worth of shares was changing hands each day via the Shanghai-Hong Kong Stock Connect’ northbound link, through which foreign investors can trade Chinese stocks. The figure is more than double the amount in August 2017. The average daily turnover for the southbound link, through which mainland investors can trade Hong Kong-listed shares, rose to HK$7.9 billion ($1.01 billion) last month, up from HK$6.8 billion 12 months earlier.
The Shenzhen-Hong Kong Stock Connect launched in December 2016. As of August, 8.81 billion yuan worth of shares was changing hands each day via its northbound link, more than double the amount a year earlier. Over the same period, the average daily turnover for the southbound link nearly doubled to HK$4.01 billion.
To ensure the amounts of money moving back and forth across borders stays under control, the established mainland stock connects are subject to daily turnover quotas. In May, Chinese securities regulators raised daily quota for northbound trading on the two links from 13 billion yuan to 52 billion yuan after President Xi Jinping pledged to further open the economy to foreign investors. Authorities also raised the quota for southbound trading from 10.5 billion yuan to 42 billion yuan.
Unlike the two links between the mainland and Hong Kong, the Shanghai-London Stock Connect does not allow domestic investors to directly purchase foreign stocks. Instead, they can only purchase foreign stocks in the form of depositary receipts.