The First Seeds Of Doubt In Shanghai London Stock Connect

Shanghai London Stock Connect
British Chancellor of the Exchequer Philip Hammond and Chinese Vice-Premier Hu Chunhua react after the opening of the markets at the London Stock Exchange in London, Britain June 17, 2019. (Photo: REUTERS/Henry Nicholls/Pool)

Global stock markets saw the launch of the Shanghai London Stock Connect on Monday, with many traders celebrating what could be a breakthrough in international trading. However, some experts doubt that a big change will come through the link.

Several people with knowledge of the matter told Caixin that compatibility issues could hamper the link's goals of attracting traders. Among the problems the sources pointed out are different trading limits.

In London, traders don't have a trading limit while in Shanghai, trading is limited to 10 percent daily. An insider who spoke on condition of anonymity said the launch of the Shanghai London Stock Connect was "more of a symbolic move than a genuine opening of a new trading market."

Only Huatai Securities Co. Ltd. started using the stock link so far. Furthermore, some experts noted that a similar link was launched in October in partnership with a German firm. Trading volumes have been low and Qingdao Haier Co. Ltd. is its only participant to date.

Both London and China have goals to achieve in launching the stock link. The countries are also looking to strengthen bilateral and trading ties through the new program. The two sides also want to open up their markets to more global investors, experts said.

Despite some doubts about how the Shanghai London Stock Connect would impact the countries' trading markets, many industry analysts are looking forward to positive changes and breakthroughs that the link will provide.

After all, the link will provide some companies listed under the Shanghai Stock Exchange and the London Stock Exchange to issue and make use of depositary receipts. Basically, investors can purchase the receipts and firms can sell the receipts for various funding purposes.

The stock link was supposed to be launched last year but has become part of the visit of Chinese Vice Premier Hu Chunhua to London instead. British Chancellor Philip Hammond noted that the link is "a groundbreaking initiative."

Hammond further explained that the Shanghai London Stock Connect is expected to enhance connectivity among traders around the world. For London traders and investors, the link could open opportunities to trade in Asia.

It is also expected that the stock connect will help boost Shanghai trading activities. In 2018, the Shanghai Stock Exchange underperformed amid the ongoing China-U.S. trade war.

The Chinese government has been working to internationalize markets in the country. The newly-launched link is expected to help achieve Beijing's goal as more traders learn about the opportunities offered by the stock connect.

Some trading analysts said Huatai's debut in London could help encourage other mainland China firms to explore funding opportunities in the United Kingdom.

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