Shanghai-Hong Kong Stock Connect launched on Monday, November 17, 2014 in an impressive debut. By 2pm the entire allowable quota of trading in the northbound direction (from Hong Kong into Shanghai) was consumed.
Southbound trading (from the mainland into the Hong Kong market) was more muted, not surprisingly given the alternative channels for investing abroad Chinese investors have enjoyed for some years. By the end of the trading day southbound trading had used only 17 percent of the allowable maximum. In the days following the launch trading volume in both directions fell off to more sedate levels, well below the daily quotas in either direction. The lower subsequent volumes should not surprise observers given the pent-up demand released on launch day and the reality that any new financial product requires time to gain the attention and acceptance of investors.
The fact remains that Stock Connect is a transformational development for China’s capital markets that will, as it develops and matures, open new volumes of international investment into the Shanghai Stock Exchange (SSE), and lead to increased integration of China’s capital markets into the global economy. It gives investors around the world greater access to China’s growth trajectory via previously unavailable exposure to a broad range of Chinese equities. It provides another channel for capital from the mainland into the Hong Kong Exchanges and Clearing (HKEx), increasing the internationalization of Chinese outbound institutional and retail investment. Of course as with any new initiative there are challenges, including tax, legal, and operational issues that have prompted some investors to delay their full participation until some of the uncertainties are resolved.