Hong Kong-Shanghai Connect: Shanghai market opens its doors to foreign investors

Most foreign investors can now access to Chinese stocks directly thanks to the Hong Kong-Shanghai Connect.

Andrew Van Sickle
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The Hong Kong-Shanghai Connect, a trading scheme opening Shanghai's stockmarket to foreign investors, launched this week. Most foreign investors can now access Shanghai directly for the first time, while mainland Chinese have a new route to international markets via Hong Kong.

Every day, up to $2.1bn dollars may flow into China, while slightly less can go south. On the programme's first day, international investors used up their Shanghai quota by lunchtime. Mainland buyers filled just a fifth of theirs all day.

What the commentators said

The Connect scheme kicked off with confetti and a ceremonial gong. But "the party didn't last long", said Alex Frangos in The Wall Street Journal.

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Global investors duly snapped up Shanghai shares that had previously been "walled off" from them, notably SAIC Motor, China's top car maker, and liquor giant Kweichow Moutai. Yet mainland inventors "seemed in no rush" to get their hands on shares in Hong Kong.

Perhaps that's not surprising: anyone rich enough to qualify for the programme's $81,550 minimum threshold "may already have found a way to get their money past China's capital controls into a Hong Kong brokerage account".

The lukewarm start shouldn't obscure the importance of the scheme, said the FT. Among other aims, the gradual opening of China's financial markets is intended to help promote the acceptance of the renminbi as a global currency. A key obstacle to this so far has been the "paltry investment opportunities" open to those who hold redbacks'.

Last year, international investors had renminbi assets worth just $250bn to choose from, compared to $55trn of assets denominated in dollars. An expanding renminbi market will make it easier to start reducing China's reliance on dollar-denominated Treasuries.

"Washington must start preparing for the day when it no longer has a captive buyer for its bonds across the Pacific."

Andrew Van Sickle
Andrew Van Sickle
Editor, MoneyWeek

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.

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