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A new dawn for China and the global investment community

This is a genuinely historic week for the world’s financial markets. For the first time investors worldwide can invest directly in the companies driving this country’s amazing growth story via the Hong Kong-Shanghai Stock Connect initiative.

From this week, investors are able to trade in shares listed the Hong Kong and Shanghai stock exchanges, with some minor restrictions. Until now, investors outside China faced lengthy application processes to acquire the required approvals from the Chinese Securities Regulatory Commission. Now, to a great extent, if you can deal on one exchange you can deal on them both. 

For international investors this is a huge opportunity. The IMF reported last month that China had surpassed the USA to become the world’s largest economy, its economic worth totaling $17.6 trillion versus the USA’s $17.4 trillion. (Note, however, they still calculate this in dollars). SWIFT announced last year that the renminbi had overtaken the euro as the second most used currency in trade finance, and last month it said it was now the world’s seventh most traded currency. Certainly we at Thomson Reuters have seen a 350 percent increase in offshore renminbi trading this year so far.

Yet China is achieving all of this activity in spite of offering comparatively controlled access to international investors. I believe China is now embarking on the second stage of a process to further internationalise its markets: the first step involved the creation of some offshore renminbi markets and comparatively small-scale testing of investor appetite for trading; now the second stage is capitalizing on that experience and bringing a much more concerted push. The established renminbi centres around the world are leading corporations to become more confident about using the renminbi as a transaction currency, and holding it outside China.

So it’s a major opportunity for international investors and the second stage of an experiment in open markets for China: it therefore stands to reason that it is in everyone’s interests to make this initiative a success. The challenge for the financial industry worldwide is to ensure it makes maximum use of these opportunities to integrate China further into the global economy. It is a challenge that largely rests with global companies such as ours.

It means ensuring access to all the market information, news and access investors need easily from day one. Investors using Hong Kong-Shanghai Connect in China require all of the information and analysis tools they would expect in international equity research. They also require the information they need to negotiate the current trading parameters - for instance, Hong Kong investors trading Shanghai stocks are limited to a daily quota of 13 million renminbi per day (about $2.1 million).

Over the past six months, the industry has conducted four market rehearsals, with the most recent in mid-October. We have developed, we have invested, we have worked alongside potential market participants, regulators and exchanges. The global financial services industry has been preparing for this moment, and now all that remains is for investors to seek out and find the new opportunities before them.

This is truly a new dawn. We congratulate the regulators and exchanges for taking this bold and exciting initiative, and we wish the investors who waited for this moment every success as they participate directly in the next stage of China’s great growth story.

 

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