Poll: Will the Shanghai-Hong Kong Stock Connect Be a Transformational Breakthrough in Opening China’s Capital Markets?
China’s Shanghai stock exchange has a total market cap of just under US$3 trillion, yet foreign investors do not have an easy way to purchase shares. In 2002, the Qualified Foreign Institutional Investors (QFII) program opened up A-share investment to firms approved by the China Securities Regulatory Commission (CSRC). As of November 2014, 267 institutions have been approved to purchase A shares. QFII represents the willingness of China’s government to accept outside investment; however, the limits remain quite low (US$80 billion).
The Shanghai-Hong Kong Stock Connect program allows foreign firms to purchase A shares on the Shanghai exchange via a Hong Kong-domiciled broker. The key benefit is that the investment firms do not require CSRC approval. However, limits (and other trading frictions) remain in place, which limits the overall effect.
We asked CFA Institute Financial NewsBrief readers whether the stock connect program represents a “transformational breakthrough” in opening China’s capital markets. Of the 378 respondents, 50% think it represents a breakthrough, whereas the other half is split between “no” and “unsure.” Even though limits restrict investment for foreign investors, the stock connect program represents an important step toward opening up China’s capital markets.
Will the just-launched Shanghai-Hong Kong Stock Connect program prove to be a transformational breakthrough in opening China’s capital markets?
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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.