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about whether it is a success, failure or something
in between. The Shanghai-London Stock Connect
was first discussed in 2015 and wasn't a reality until
2019.
After it was up and running, only one Chinese
company was listed in London, and no European
company has been successfully brought to the
Shanghai market via London Connect. The one
Chinese company in London, Huatai Securities,
raised less than hoped and traded at a deep discount.
Liquidity has been low.
Critics say that the time difference is a problem
and that it makes no sense to have shares trading so
far away from the home market. Press reports earlier
this year said that the program had been halted,
though the China Securities Regulatory Commission
and the London Stock Exchange (LSE) have denied
that this is the case. The LSE says that companies
are lining up to list in both directions, and it believes
that the time difference may
ultimately be its strength.
“Shanghai-London Stock
Connect has not been
suspended, it has been fully
operational since launch,”
says Martina Garcia, head
of international markets
strategy at the LSE.
“The design of Shanghai-London Stock Connect
is different from the link between Shanghai and
Hong Kong. The links between Shanghai and Hong
Kong and Bond Connect are trading links. The two
markets are open during the same trading hours.
What you have is an order-routing model in which
a broker in one of the markets can access the
exchange and securities in other market,” she adds.
“We took a different approach for Shanghai-
London Stock Connect. What we wanted to do, and
what we have achieved from a design perspective,
is to extend the trading hours to cover both regions
and create a secondary liquidity pool in each
market. This is what makes the construct different;
it is not only a trading link, but also a primary link.”
She believes that liquidity will improve once more
companies issue shares in London. She also believes
that many investors will be interested in trading
Chinese shares in London. Garcia argues that for
small and even medium-sized players, going via
QFII or even via the Stock Connect in Hong Kong is
a big ask and requires more of an investment than
they may want to make. Trading in London is very
easy for most.
Observers of these markets
say that links do work and make
sense, but only if they are driven
by necessity rather than by
vanity or politics. Because the
connections by definition involve
connecting more institutional
plumbing to what is already
there, they must be intuitive,
attractive, compelling and worth
the trouble.
For that reason, links fail in
most cases. They are especially
absurd for markets that are
already open. No reason exists for
them.
More China connections might
work. While the Hong Kong
offering is good and increasingly
“Stock Connect and Bond Connect have limited
shelf lives. They just layer on another cost.”
72 // TheTRADE // Spring 2020
MARK AUSTEN, CEO, ASIFMA
popular, and all traffic could just
be routed through it, investors
would probably like to see a
diversity of pathways into China.
Going through Hong Kong might
be easy, but it is still a choke
point.
“Success is really in connecting
closed markets to open markets.
Chinese markets are very difficult
to access or have been very
difficult to access, and there
is quite a bit of interest in the
market. Even though there is
some clunkiness in the links,
investors are willing to put up
with that to access the market,”
says Austen. “If China markets
were open, the Stock Connect
wouldn't work.”
“Stock Connect and Bond
Connect have limited shelf-lives,”
he concludes. “They just layer on
another cost.”