News that the British and Chinese stock market will be directly linked is a positive for both countries. It proves China is opening up and it is, post-Brexit, a vote of confidence in the City of London.
By the end of this year, there will be a direct link between the London Stock Exchange and markets in China. This will give Chinese investors direct access to shares listed in Britain and UK-based investors will provide a way for global investors to access China A-shares from outside Greater China for the first time. It will allow investors to trade shares more freely in both countries.
The announcement, which has been in the works since 2015, is more symbolic than anything else. In the UK, investors can buy shares in China through the Hong Kong connector and Chinese share-buyers have used offshore brokers to buy shares in London. However, it is an important vote of faith in the City of London as we prepare to leave the European Union and it is a sign that China is serious about becoming more open to global investors and making the yuan a global currency. It should increase trading volumes in the UK.
It has already been confirmed that stocks listed in mainland China will be included in MSCI indices in June this year. This is expected to increase the appetite for Chinese shares from index-tracking funds and other investors. The move by MSCI will see some 235 of China’s “A” shares included in its indices.
Investors will need to consider that investments in China will lead to potential exposure to state-controlled entities operating in a market with high state interference. The numbers of shares that can be purchased is also limited. Many of China’s companies are also highly leveraged. However, the move appears positive for both the City and China.
The above article was previously published by Charles Stanley on 5th April 2018