China wants foreigners to help boost flagging stock market and push its opening agenda
Beijing’s new rule to allow foreigners living in the country to trade domestic shares directly for the first time comes amid a market slump and pressure from US attacks on its trade practices
China’s decision to allow foreigners working in the country to trade local A shares directly for the first time comes as it looks to further open its closely guarded markets in the face of US trade pressure and a slowing economy, and to help a stock market that has fallen into its biggest slump in three years.
Yuan-denominated A shares will be open to individual foreigners working in mainland China and to overseas employees of companies that have issued A shares, the China Securities Regulatory Commission (CSRC) said on Wednesday. The change will give trading rights to around 1 million people and will go into effect on September 15.
Beijing has long pushed an agenda to open and internationalise its markets, initially allowing foreign institutions to trade A shares via the Qualified Foreign Institutional Investor (QFII) programme launched over a decade ago, and more recently through the Stock Connect schemes linking Hong Kong’s stock exchange with those in Shanghai and Shenzhen.
But liberalisation has become a more urgent issue of late as the US aggressively pushes back against what it calls China’s unfair trade practices.
“It is another important step taken by the Chinese regulators to internationalise the market,” said Ivan Li, an asset manager with Loyal Wealth Management. “It is a clear message that the country will further open the equity market following a series of liberalisations during the past years.”
At the same time, authorities are keen to boost a stock market that has struggled in the face of a slowing economy and a falling yuan currency, as well as the pressures from the US trade tariff onslaught.
The benchmark Shanghai Composite Index has slumped about 18 per cent since the end of last year, the biggest decline since mid 2015 and making it the second-biggest loser in local-currency terms out of 95 indices tracked by Bloomberg. Chinese equities as a whole have lost a combined US$2 trillion in value since January, resulting in China recently losing its crown as the world’s second-largest equity market to Japan.
However, while the new rule, first announced a month ago and formally introduced on Wednesday, may have a positive impact on sentiment among local investors, some analysts said that the weakness of the Chinese yuan might deter foreign investors from buying yuan-denominated assets.
Offshore yuan, which is traded by international investors outside mainland China, hit its lowest level in 20 months on Wednesday.
Other analysts said the new rule is a step in a longer process towards Beijing’s ultimate goal of a full opening of its markets and currency.
“Some day, the Connect schemes and QFII systems will be history when the market is fully opened to foreign investment amid yuan’s full convertibility,” said He Yan, a fund manager with Shanghai Shiva Investment. “Letting individual players access the market is certainly a preliminary move to pave a way for a full opening in future.”
But other plans to allow more participation in the market have not gone smoothly. In June the CSRC put on hold a plan to introduce Chinese depository receipts to lure back the country’s best tech companies that are listed in the US. The market slump and a lukewarm response among tech firms stymied the idea.