Schroders Quickview Cross-border stock trading bodes well for China reform path

by **Cals** Fri 11 Apr 2014, 14:29

Schroders Quickview Cross-border stock trading bodes well for China reform path

Business & Markets 2014

Written by Louisa Lo, Head of Greater China Equities

Friday, 11 April 2014 12:15

THIS move is a positive signal for broader developments in China’s financial market reforms, and may be seen as a reiteration of the Chinese government’s stated intentions to steer its capital markets towards a gradual path of liberalisation.

However, similar to broad reform directives announced at the Third Plenum in November last year, details on how this scheme will be administered will require further close monitoring. Implementation will take at least six months, as further details are to be unveiled.
The immediate beneficiaries of such a move include the listed stock exchange in Hong Kong, securities companies and brokers, who are expected to benefit from increased transaction volumes and new business opportunities resulting from this initial integration.

There are also obviously broader long term implications for investors in Chinese equities.

A material step demonstrating the Chinese authorities’ market liberalisation efforts (in addition to recent moves to expand the existing QFII and RQFII program), this development can be expected to further facilitate the inclusion of China A shares, along with the pace of this inclusion, into the widely-watched MSCI Emerging Markets Index.

This closer integration of both the Hong Kong and China markets could also have an impact on individual stock prices where companies have dual A & H listings. Making it easier to arbitrage valuation differences across the two markets, we may see a narrowing of valuation discounts between A and H shares over time.

Mainland as well as international investors will also be provided with unique opportunities to buy into select blue chip stocks listed onshore in China as well as offshore in Hong Kong.

Previously inaccessible, investors can now gain access to a wider range of investment opportunities. Mainland-listed consumer- and services-related sectors, for example, provide more options for international investors wanting to participate in China’s consumption story, whilst companies with an international footprint listed in Hong Kong will offer diversified investment opportunities for mainland Chinese investors wanting exposure beyond Asia.