China Aiming for a Stock-Trading Link With London This Year

(Bloomberg) -- China is aiming to start a stock trading tie-up between Shanghai and London this year, according to a top official, creating a system that would give investors in the world’s most populous country direct access to shares listed in the U.K.

The timing was announced by People’s Bank of China Governor Yi Gang at a panel discussion during the Boao Forum for Asia on Wednesday, unveiled as part of a broader package of policies that will further open up the nation’s financial sector. The program with London Stock Exchange Group Plc would be the third system to give foreigners access to the mainland equity market, the world’s second biggest by value. A link between Shanghai and Hong Kong started in November 2014, and a connect between the former British colony and Shenzhen’s bourse opened in December 2016.

An agreement for some sort of connection between London and Shanghai exchanges has been in the works since at least September 2015, when plans were disclosed during a visit to China by then-U.K. Chancellor of the Exchequer George Osborne. In November 2016, LSE and the Shanghai bourse agreed to “develop rules and implementation arrangements.”

The link’s importance is symbolic, as U.K. investors already have access to mainland shares through the Hong Kong links and Chinese traders can use offshore subsidiaries of domestic brokerages to buy stocks in London, said Huang Dongsheng, Shanghai-based head of research at Weifang Fund, which manages more than 4 billion yuan ($637 million). But, he said, “the program signifies that China’s deepening its opening-up effort and its push to make the yuan a global currency.”

The new link will allow global investors to access China A-shares from outside Greater China for the first time and through international trading and settlement practices, said Nikhil Rathi, who runs London Stock Exchange Plc.

Linking the mainland’s capital markets with London is good news for the U.K., China and the wider global economy, said Rathi. “U.K. listed companies will be able to access Chinese investors directly, while Chinese investors will be able to truly access international stocks from China,” he said.

Quota Increases

Yi also said China would raise the daily limit for net buying to Hong Kong using the stock connects to 42 billion yuan from 10.5 billion yuan on May 1. The daily northbound quota will be raised to 52 billion yuan from 13 billion yuan, he said. Investors are expecting increased use of the links when Chinese-listed stocks are added to MSCI Inc.’s global emerging markets index in June. The system has seen the daily limit hit just three times: northbound on Nov. 17, 2014, the day the Shanghai program started, and southbound on April 8 and April 9, 2015.

Hong Kong Exchanges & Clearing Ltd., which administers the southern end of the connects, rose 3.1 percent in morning trading, its biggest gain since Feb. 26. Chief Executive Officer Charles Li welcomed the quota increase. “We appreciate that the regulators have been responsive to evolving market needs,” he said in a statement.

“I’m surprised to see China expanding the daily quotas so soon and by that much,” said Banny Lam, head of research at CEB International Investment Corp. “This sends a signal from the officials: We are really opening up the market and proceeding quickly.”

--With assistance from Kana Nishizawa and Viren Vaghela

To contact Bloomberg News staff for this story: Amanda Wang in Shanghai at twang234@bloomberg.net, Gary Gao in Shanghai at cgao58@bloomberg.net, Cindy Wang in Taipei at hwang61@bloomberg.net.

To contact the editors responsible for this story: Sam Mamudi at smamudi@bloomberg.net, Richard Frost at rfrost4@bloomberg.net, Ambereen Choudhury, Darshini Shah

©2018 Bloomberg L.P.

With assistance from Amanda Wang, Gary Gao, Cindy Wang