Chinese regulator agrees to further open stock markets to international community

Rick Steves

The Chinese regulator stated that expanding the scope of underlying stocks eligible for trading under Chinese mainland-Hong Kong Stock Connect mechanisms is an important measure of CSRC to earnestly implement the guiding principles of the 20th CPC National Congress.

china

The China Securities Regulatory Commission and Hong Kong’s Securities and Futures Commission (SFC) have together announced the (in principle) further expansion of the scope of underlying stocks eligible for trading under Chinese mainland-Hong Kong Stock Connect mechanisms.

The pragmatic cooperation between Chinese mainland and Hong Kong capital markets and the expansion of the programme will gain further visibility in international markets with the global expansion of HKEX, which has just opened an office in New York.

The New York office will provide an on-the-ground dedicated team for HKEX’s North American customers and will promote the exchange operator’s liquid primary and secondary cash markets, as well as its exclusive connectivity with Mainland China’s markets and its diverse suite of derivatives.

Underlying stocks eligible to include stocks of foreign companies

For the underlying stocks eligible for the northbound trading under the Shenzhen Connect, the constituent stocks of the SZSE Composite Index that have a market capitalization of CNY 5 billion or above and meet certain liquidity criteria will be selected to replace the constituent stocks of the Shenzhen Component Index and the SZSE Small/Mid Cap Innovation Index with a market capitalization of CNY 6 billion or above under the Shenzhen Connect, while the A shares that have issued both A shares and H shares will still be included according to current arrangements.

The scope of the underlying stocks eligible for the southbound trading under the Hong Kong Connect will be expanded, on the basis of the existing scope, to include the stocks of foreign companies primarily listed in Hong Kong which are constituents of the Hang Seng Composite Indices and meet relevant criteria.

After the expansion, with more SZSE-listed stocks included under the Shenzhen Connect, it will provide investors outside Chinese mainland with more choices of growth, innovation-oriented assets for allocation and attract medium and long-term capital from outside Chinese mainland. The inclusion of foreign companies into the scope of underlying stocks eligible for the southbound trading under the Hong Kong Connect will further support Hong Kong improving its attraction to international companies.

Access to Mainland China markets is part of guiding principles of the 20th CPC National Congress

The Chinese regulator stated that expanding the scope of underlying stocks eligible for trading under Chinese mainland-Hong Kong Stock Connect mechanisms is an important measure of CSRC to earnestly implement the guiding principles of the 20th CPC National Congress, actively serve the creation of a new development pattern, and promote high-standard, two-way opening up of capital markets.

“It is of positive significance to facilitating cross-border investment activities of investors in and outside Chinese mainland and promoting the coordinated development of Chinese mainland and Hong Kong markets. Next, SZSE will follow the unified plan of CSRC and adhere to the general principle of seeking progress while maintaining stable development. We will work with relevant parties including HKEX, CSDC and HKSCC to make adequate business and technological preparations, release the specific arrangements for the expansion of the scope of stocks including the selection criteria of eligible stocks, adjustment mechanism and implementation time to the market as soon as possible, and put forth effort to ensure the smooth implementation of the expansion.”

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