China to quadruple stock connect quota next month

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People's Bank of China (PBOC) governor Yi Gang.  Photo: China Daily via Reuters

China’s securities regulator announced on Wednesday that it would sharply increase daily quotas for stock-connect schemes that link mainland stock markets to those in Hong Kong, as the country’s leadership continues to unveil reform measures aimed at further opening China’s markets.

The increase in quotas, which will affect both northbound trading of mainland A-shares by international investors and southbound investment into Hong Kong markets, is said to be part of preparations to include mainland stocks in the MSCI Emerging Markets Index.

“More international indexes will include China’s A-shares. This will be a trend,” Sally Wong, chief executive officer of the Hong Kong Investment Funds Association, told The Asset. “The quota of the Stock Connect is sufficient for now, but in the long run, it will never be sufficient with the increasingly growing demand from international investors,” she added.

Shen Hua, CEO of Bank of China (HK) Asset Management, was quoted as saying: “It is estimated that the current northbound trading through the Stock Connect per year is about 200 billion yuan to 300 billion yuan,” or US$31 billion to $47 billion. He added that the figure would be much higher after the quota increase.

International investors expressed optimism about this move and other reform efforts.

“In response to the US, there is a clear opening-up of China. A lot of the international fund managers in Hong Kong are very excited about those opportunities,” Graham Turl, managing director for Asia-Pacific at BlackRock North Asia, was reported as saying of the moves.

The People’s Bank of China also said on Wednesday that a Shanghai-London stock connect would open by the end of the year.

UK Chancellor of the Exchequer Philip Hammond said in response that the proposed scheme would “provide UK businesses, savers and investors with unique access to exciting new investment opportunities in China,” The Financial Times reported.

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