The Shanghai-Hong Kong Stock Connect holds profits for sharp-eyed investors
CapitalVue’s Elias Glenn explains how to own a piece of a Communist Party Newspaper or Zhou Enlai’s favorite liquor with the SH-HK Stock Connect Baijiu is going global: Under a program to be launched in October, individual investors in Hong Kong will be able to finally buy stock in Kweichou Moutai, the world’s biggest seller of Chinese baijiu liquor, along with over 550 other companies listed on China’s domestic Shanghai Stock Exchange.
The program, dubbed the Shanghai-Hong Kong Stock Connect, allows Hong Kong and Shanghai investors to trade certain shares listed on each other’s stock exchanges for the first time.
Interest in the program is high, as market participants we talk to on both sides are rushing to add Hong Kong or mainland market data before the fast-approaching deadlines. The linkup marks a key step in the evolution of China’s financial and capital markets, and presents opportunities for individual overseas investors to buy into leading Chinese companies for the first time.
The program, however, will not provide a massive influx of funds to either market. There are significant limitations to the Stock Connect—a total of RMB300 billion in investment is allowed into Shanghai (the Northbound link), and RMB250 billion into Hong Kong (Southbound).
About half of Shanghai-listed companies will be available to Hong Kong investors, though the entire Shenzhen Stock Exchange and its 1,600+ companies are still off limits. Many of China’s most interesting, high-growth companies are listed on Shenzhen’s growth boards.
Despite the limited scope, the connection has sparked renewed interest in poor-performing mainland equity markets. Since the program was announced on April 10, the benchmark SSE Composite Index has gained 9.7%, while the SSE 380 Index, whose constituents will be included in Stock Connect, has risen 17.8%.
China’s capital markets have been effectively cut off from the rest of the world, and the Stock Connect program opens up many large, industry–leading companies to a much larger group of foreign investors. We are already seeing increased interest in mainland stock markets because of the program.
Source: chinaeconomicreview- The Shanghai-Hong Kong Stock Connect holds profits for sharp-eyed investors
