Stock through train could power A-share expansion
Regulatory hurdles and local investor scepticism remain key barriers in turning mainland securities into globally accepted investment products
History is in the making with the launch of the 550 billion yuan (HK$695.7 billion) scheme to directly link the stock markets of Hong Kong and Shanghai that is scheduled to take effect when markets open today.
Coupled to a landmark reform to scrap the cap on yuan currency conversion by Hong Kong citizens, the so-called "through train" could be the engine of a dramatic global expansion of equity investment in mainland securities.
Vincent Chan, the head of Credit Suisse's China equity research, estimates that world equity funds invested in the mainland's A-share market will more than double by 2020 to about US$112 billion from the US$49 billion today.
But regulatory hurdles and local investor scepticism remain key barriers to progress to turn mainland securities - and the yuan - into internationally accepted investment instruments.
Stewart Aldcroft, a senior adviser and managing director at Citi Securities & Fund Services, said some international funds might not be able to take advantage of the stock connect because of a lack of clarity around differing regulatory regimes.
"The regulatory authorities in both Luxembourg and Dublin have been reluctant to give a blanket approval to the custody holding of A shares via the system as proposed," Aldcroft told the .
Securing such approvals is key as the stock connect scheme is seen by potential investors as a way for institutions that lack quotas under existing fund schemes to access the mainland stock market.
