China's market links resume as Brexit worry eases

Added 11th August 2016

After a Brexit delay, Hong Kong’s Shenzhen market connect is “imminent” and the Shanghai-London link will go forward, according to reports.

China's market links resume as Brexit worry eases

Hong Kong Exchanges and Clearing chief executive Charles Li said that the Shenzhen-Hong Kong Stock Connect was “imminent”, according to a CNBC report today.

Expectations are supported by a report in Caixin that said the China Securities Regulatory Commission has set up a special working group to launch the Shenzhen connect. 

The Shenzhen linkup was supposed to follow the Hong Kong-Shanghai Stock Connect, which went live in 2014. Those plans were delayed after China’s surprise devaluation of its currency sparked strong global volatility in August last year and China’s retail investor-driven markets subsequently plunged.

Because Shenzhen has more volatile small cap and technology stocks than the Shanghai bourse, regulators were presumed to be waiting until markets had relative calm. As Brexit proved to have little impact on Asian markets, regulators have now become more active. 

London link

Brexit also complicated plans for the Shanghai-London Stock Connect, which is currently the subject of a feasibility study by the London Stock Exchange. The initial expectation was that an agreement between the two bourses would be signed next month.

However, after Brexit, the CSRC has been hesitant to proceed with the plans, according to a June 27 South China Morning Post report, quoting unnamed sources.

Que Bo, a deputy general manager of the Shanghai Stock Exchange, was quoted in the report saying a Brexit would be a “complicated issue” and if the vote was to leave the EU, the local bourse would engage other groups to assess the changes that would occur in trading on the LSE.

However, London's financial community is strongly backing the Shanghai-London Stock Connect initiative, according to a recent report in the mainland’s state-run China Daily.

“[T]ougher listing rules [in the UK] compared with EU rules would make the exchange more attractive to high-quality new listings, and London is unlikely to lose its strength as a financial center post-Brexit,” the report said.

The report added that the LSE has confirmed the feasibility study is continuing.

The Hong Kong Stock Exchange is also aiming to link with London. Last year it initiated a preliminary study on developing a Hong Kong-London Connect to link commodities markets. The HKEx owns the London Metal Exchange (LME).

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