A LANDMARK policy that allowed greater access to and from China’s closed-off financial markets has failed to inspire in its opening weeks.
The Shanghai-Hong Kong stock exchange connect allows foreign investors to buy shares listed on the Shanghai bourse for the first time ever. It also allows Chinese investors to purchase foreign assets via Hong Kong. The facility has a daily cap of 13bn renminbi (£1.3bn).
However, after an active opening day, the facility usage has averaged below the daily cap. “Northbound” purchases – foreign investors buying Shanghai shares – totalled 4.2bn renminbi on average. “Southbound” trading has only averaged 600m renminbi since the opening day.
“The feedback from the existing Connect is that no Chinese money wants to leave China,” Fraser Howie, director at Newedge Singapore and co-author of Red Capitalism: the fragile financial foundation of China’s extraordinary rise, told City A.M.
“Southbound flows from Shanghai are minimal compared to Northbound flows. Money into China is the focus at the moment, outbound flows don’t matter,” Howie said.
The Shanghai stock market rebounded by three per cent yesterday after plunging five per cent on Tuesday. Over the past three weeks, it had made gains of over 20 per cent.
“What is interesting is that even such strong moves up are not attracting much interest via the Connect facility. Interest remains lacklustre and lower than in the first few weeks,” Howie said. Jinny Yan, a director at Standard Chartered Bank, believes the trading values have been subdued because there has not been enough distinction between what is possible via the connect facility and existing schemes.
“Once investors see the benefits in the stock exchange connect, it will become a very legitimate channel for investment,” Yan told City A.M.