Shenzhen-Hong Kong stock link heightens expectations for fresh outbound QDII, QDLP quota

The imminent launch of Shenzhen-Hong Kong stock connect, a sign of the mainland capital market’s return to liberalisation, has heightened speculation over other potential cross-border share-trading schemes amid a growing desire for Chinese investors to diversify their assets.

Beijing’s green light for the stock connect linking Shenzhen and Hong Kong markets, likely to be operational within four months, was interpreted as a move to allay concerns about tighter longer term regulation of the A-share market following a disastrous stock crash last year.

The share-trading link system between Shenzhen and Hong Kong represented Beijing’s willingness to further open up the capital market.

Chinese financial regulators have taken a cautious stance on liberalisation since markets were battered in mid-2015, worried that any action would trigger a further slide of key indicators.

The investment community is now anticipating a distribution of new foreign-exchange quota for the qualified domestic institutional investor (QDII) and qualified domestic limited partner (QDLP) schemes, both of which allow domestic investors to buy overseas-listed equities.

“It will be up to the foreign-exchange regulator to make a final decision, but it’s apparent that appetite for buying foreign-listed equities is high,” said Tan Jialong, director of Zendai Group’s investment division. “Indeed, cross-border equity investment helps China internationalise its currency [yuan].”