BEIJING, Feb. 15 (Xinhua) -- Since its first proposal in 2015, the Shanghai-London Stock Connect scheme has attracted attention and made steady progress. While it is ready to take off, the similar Shanghai-Deutsche Stock Connect scheme has also been put on the agenda, promising new breakthroughs in the interconnection of capital markets between China and foreign countries.
The year 2019 may mark a new era for inflow of foreign capitals into China's A-share market, said a senior financial analyst.
UBS Securities indicated in a report on January 25 that for nearly two weeks foreign capitals flooded into China's A-share market and the trend is expected to continue. While Goldman Sachs shared the idea and held that the current sluggish A-share market offers a good chance for overseas long-term investors.
Shanghai-Deutsche Stock Connect on the agenda
On January 18, 2019, China and Germany released a joint statement. According to the statement, the two sides reached consensus on the cooperation in cross-border security issuance and supervision, offshore market development, and the interconnection of capital markets.
Specifically, China welcomes qualified German-funded banks in the country applying for business licenses for China Depository Receipts to further enhance the interconnection between the two countries' capital markets. The two sides also view favorably the Bank of China and the China Europe International Exchange AG (CEINEX) signing of a memorandum of understanding on cooperation in D-shares to help Chinese firms go public in Germany. These efforts have put the Shanghai-Deutsche Stock Connect scheme on the agenda, promising a closer interconnection of capital markets.
Under the framework of cross-boundary collaboration on supervision of futures market, CEINEX will launch A-Share Index Derivatives in Frankfurt to offer risk management instruments for international investors and facilitate the further opening-up of China's capital market.
From Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect, to Shanghai-London Stock Connect and Shanghai-Deutsche Stock Connect, these moves have showed China's determination to advance the opening-up of its capital market. The Shanghai-Deutsche Stock Connect, as the Shanghai-London Stock Connect, will promote RMB internationalization while offering more channels for the capital market to open up, said analysts.
Interconnection advances irresistibly
At the moment, the Shanghai-London Stock Connect is ready to take off with regulatory provisions and supporting rules in place. The scheme is a cross-boundary investment channel, through which London-listed companies are allowed to issue Depository Receipts (DRs) in China. Investors trade and settle the DRs in a similar way to trading stocks. In addition, with reference to international practices, the DRs and the underlying stocks can be converted into each other through the Shanghai-London Stock Connect. With the conversion mechanism, the trading in the two markets will be connected.
Interconnection represents the right trend and is bound to advance forward. This not only echoes the trend of China's capital market's opening-up, but also creates an enabling environment for securities companies to expand international presence, thereby expediting the development and improving international competitiveness of the financial sector, said a strategy analyst of Guotai Junan Securities.
Interconnection offers Chinese investors more options to make foreign asset allocation, and broadens channels for Chinese enterprises to raise capital by listing in overseas markets, the analyst continued, adding that the increasing interconnection between Chinese and European capital markets is of great significance and will deliver remarkable results.
Capital market forges ahead steadily in opening-up
China's capital market has made steady progress in reform and opening-up in recent years, with the breadth and depth being constantly expanded.
For years, China has rolled out a string of measures to advance the opening up of capital market, bringing about significant changes and continuously expanding its international influence. Just to name a few, joint-venture securities firms are approved where foreign investors are allowed to hold shares, and such firms are permitted to launch a wider range of businesses; the Qualified Foreign Institutional Investor (QFII) and RMB Qualified Foreign Institutional Investors (RQFII) systems have been implemented, and overseas institutions are allowed to invest in inter-bank bond market; the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect have been launched with increasing daily transaction amount; the China A shares was included in the MSCI Emerging Markets Index in June 2018, and is projected to be added to FTSE Russell index and S&P Dow Jones Indices in 2019, speeding up the international progress of A shares.
Meanwhile, China has endeavored to attract long-term capitals into the A-share market and improve the structure of investors, further aligning its capital market to the international market.
China's capital market is forging ahead steadily toward the goal of being regulation-based, transparent, open, vibrant and resilient.
Since the beginning of 2019, foreign capitals have been surging into the A-share market. According to Wind's data, as of January 24, the total net buying of northbound capital through the Shanghai Stock Connect and Shenzhen Stock Connect has reached 681.955 billion yuan, hitting another new high. The net buying has recorded 39.867 billion yuan since January, including 22.601 billion yuan from Shanghai Stock Connect and 17.265 billion yuan from Shenzhen Stock Connect. (Edited by Bao Nuomin)
A single purchase
