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Breakingviews: Jury still out on HK-Shanghai stock connect

Thursday, November 13, 2014 - 02:46

The Hong Kong-Shanghai stock connect may be a major breakthrough for capital markets in China, but a host of restrictions will continue to challenge the milestone plan, says Peter Thal Larsen.

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(SOUNDBITE) (ENGLISH) REUTERS REPORTER, TARA JOSEPH, SAYING: "On the face of it, Peter, connecting Hong Kong and Shanghai stock markets with this connect plan really is a breakthrough for the opening of capital markets in China, but only time will tell. I know that sounds trite." (SOUNDBITE) (ENGLISH) ASIA EDITOR, REUTERS BREAKINGVIEWS, PETER THAL LARSEN, SAYING: "It does a bit, and we've waited so long for this, and it's been talked about for so many years, that actually the fact that they're actually going to press the button on Monday and go live with this scheme in itself is quite a big deal. And on the face of it, it sounds like it should be fairly straight forward right? You basic - if you're in Hong Kong, you can buy 568 shares in Shanghai. If you're based in the mainland you get access to 276 Hong Kong-listed companies. But it's actually much more complicated than that and the reason it's so complicated is because China is placing all kind of restrictions about how capital can flow across borders and that means that both Hong Kong and Shanghai have had to kind of tie themselves into all kinds of knots to try and make sure that this scheme can work while being subject to those restrictions." (SOUNDBITE) (ENGLISH) REUTERS REPORTER, TARA JOSEPH, SAYING: "I mean overall if this works trading volumes, in Hong Kong in particular, could absolutely explode. I've heard some quotes of like a 38 percent rise in trade volumes in Hong Kong in the year 2015. And interestingly, the banks have moved really fast to sort out connections to make this work. But like you say, it comes down to that ability of China to say, 'we're really going to ease off on restrictions here.'" (SOUNDBITE) (ENGLISH) ASIA EDITOR, REUTERS BREAKINGVIEWS, PETER THAL LARSEN, SAYING: "I think that's exactly right. I mean I think as things are currently configured, there will be some impact. I mean clearly there will be some impact on trading volumes in Hong Kong and also I think money flowing into China as well from outside; institutional investors and hedge funds getting access to markets that may have been more difficult to access than before. But as currently configured, it's still quite restricted. I think the big question is really if this scheme is opened up in the future. So if, for example, they were to include the Shenzhen exchange. If they were to lift the quota on how many shares - or how much money can move across the border. And ultimately, even you could say you might include other asset classes in this kind of scheme. And if that were to be the case then what happens on Monday will be seen as quite significant. But it will be some time before we know quite how significant it is." (SOUNDBITE) (ENGLISH) REUTERS REPORTER, TARA JOSEPH, SAYING: "Hong Kong-Shanghai stock linkage, it launches on Monday. It could mean major, major changes, but there's still a lot of work to be done." ENDS

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Breakingviews: Jury still out on HK-Shanghai stock connect

Thursday, November 13, 2014 - 02:46