EditorialEquities market needs to be more open as China stocks go global
- Financial liberalisation has paved the way for international investors hoping to ride the country’s economic growth, but even greater transparency is required
The late paramount leader Deng Xiaoping famously taught “crossing the river by feeling the stones”. Applied to China’s financial markets, it means gradual reform.
The Stock Connect has been a key step in the nation’s decades-long financial liberalisation, and one of the most successful. Scepticism greeted the ambitious scheme when it was first launched in November 2014.
The average daily turnover for “northbound” trading – buying by Hong Kong and international investors of select Shanghai-listed companies – was just 5.84 billion yuan (US$830 million), while “southbound” trading, by which mainland investors buy Hong Kong-listed stocks, was even lower, averaging just 757 million yuan (US$108 million) a day.
But, the scheme’s eventual success means volumes have grown by leaps and bounds over the past five years. Southbound trading now averages HK$5.3 billion a day (US$677 million), equivalent to about 8.4 per cent of the total daily trading value at the Hong Kong exchange.
Meanwhile, total turnover of northbound trading in those five years hit a whopping 16.5 trillion yuan by the end of August.
A floodgate has been opened to what was a closed-off market for global investors hoping to ride China’s economic growth. For mainlanders, it’s a chance to own bellwether technology stocks in firms such as Tencent, and later this month, Alibaba, with its secondary listing in Hong Kong after New York.