[ I N - D E P T H
“We took a different
approach for Shanghai-
London Stock Connect.
We wanted to extend the
trading hours to cover
both regions and create a
secondary liquidity pool
in each market.”
MARTINA GARCIA, HEAD OF
MARKETS STRATEGY, LSE
|
S T O C K
C O N N E C T S ]
Paribas Securities Services.
Costs, it turns out, are a wash, as QFII custody
can be more expensive than Stock Connect custody,
though execution costs can be cheaper onshore. A
heavy trader might therefore opt for QFII, while a
buy-and-hold institution might find the math more
attractive in Hong Kong.
The Bond Connect is also viewed as something
of a success. As with the stock linkage, the bond
program has its share of competition, and perhaps
more. Bond investors can access the Chinese fixed-
income market through QFII or the China Interbank
Bond Market (CIBM Direct), in place since 2016.
Bond Connect was added to the mix in 2017, and
from the outset it was seen as an improbable
initiative.
“After Stock Connect was launched, people started
talking about Bond Connect. There was market
skepticism about this new platform given the
existing channels: QFII and the CIBM. What would
be the use of the Bond Connect? Where is the added
value?” says Mushtaq Kapasi, managing director
and chief representative for Asia-Pacific at the
International Capital Market Association (ICMA).
“However, ultimately it has been a real success.”
In January 2020, Bond Connect achieved an
average daily turnover of 22.4 billion, a record.
Investors total 1,668, up from 288 in 2018.
As with the Stock Connect, the Bond Connect
complements the other avenues to investment,
and investors choose a route, or a few, depending
on their needs. But generally speaking, the larger
investors opt for the CIBM, while the smaller or less
active would use the Bond Connect.
“A lot of bigger players with bigger flows prefer
CIBM direct. It is more expensive to set up initially,
but it is cheaper when you have it up and running,”
says Austin. “Bond Connect is just easy.”
From the major programs and platforms, it goes
downhill fast from there. The Asean Trading Link,
which got its start in 2012 and was supposed to
connect all the major markets of Southeast Asia, was
shut down in 2017 after few markets signed on and
those that did had little or no volume.
The best approach
A China-Japan ETF Connectivity scheme was
introduced in 2019, but not much seems to have
come of it. Almost every market in the region has
mentioned some sort of link, especially to China, but
progress has been limited.
One link is halfway there, and no consensus exists
Issue 63 // thetradenews.com // 71