Hong Kong and Shangai exchanges link up in big reform
The Shanghai-Hong Kong Stock Connect opens for business Monday. For the first time, investors from each market will have access to the other. It also means it will now be a lot easier for international investors to invest in mainland China.
“China’s markets are [currently] somewhat protected,” says Peter Marber, head of emerging markets at Loomis, Sayles & Company. “They’ve got some stocks that list themselves on the New York Stock Exchange and around the world, but it’s only a small percentage of, really, what’s listed in China. This will allow us to invest in companies that we’ve just never had access to in the past.”
While the linking of exchanges is important on its own, it’s also symbolic of a larger journey of financial reforms in the country.
“This is a historic development,” says Nicholas Consonery, director of the Eurasia Group’s Asia practice. “The second biggest economy in the world has a closed capital account, a very restricted stock market, and as it opens, I don’t even think we can even fully appreciate what a cataclysmic event this is going to be for the global capital markets.”
Consonery thinks Chinese officials are committed, but still cautious about these larger reforms, so they’ll be watching the Shanghai-Hong Kong Stock Connect very closely before pursuing others.
Both Consonery and Marber say investors should proceed with caution. The rules that govern companies in Shanghai can be very different than Hong Kong and around the world.
“We’ve had a recent IPO for Alibaba, there’s been some questions about enforceability of certain kinds of commercial rights,” Marber says. “But I would hope that most investors would have such a diversified exposure to the country that they wouldn’t put all their eggs just a few baskets.”
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