U.S. Markets closed

London-Shanghai stock connect goes live, allowing foreign firms to list their shares in mainland China for the first time

Daniel Ren ren.wei@scmp.com

Foreign companies can list their shares in mainland China for the first time starting today, with the official launch of the long-awaited London-Shanghai Stock Connect scheme.

The groundbreaking project, which will enable firms listed in the UK and mainland China to raise funds on each other's stock market, is seen as a major step for Beijing in its efforts to internationalise its markets. It had originally been scheduled to launch in December.

Huatai Securities, one of China's largest brokerages, made its trading debut on the London Stock Exchange at 8am local time as it became the first company to trade via the new link. Investors in the UK capital were able to buy and sell global depository receipts in Huatai, which has raised US$1.54 billion through the flotation.

"With the development of the Shanghai-London stock connection scheme, foreign companies that have financing demands will be able to use it to raise funds in China," Fang Xinghai, a vice-chairman of the China Securities Regulatory Commission, told the annual Lujiazui Forum last week.

The Shanghai-London link was first proposed during a visit by Chinese President Xi Jinping to the United Kingdom in October 2015.

China's stock market has long been off-limits to foreign companies and investors because of the inconvertibility of the yuan.

Beijing has been striving to liberalise the market over the past decade to keep pace with its increasing economic might.

Beijing must show courage to fulfil its market promises, says China's economic reform guru

Under the Shanghai-London stock connect, only depository receipts " bank certificates representing shares in a foreign company " will be traded by investors.

It is different from the stock links between Hong Kong and Shanghai, launched in 2014, and between Hong Kong and Shenzhen, launched in 2016, which allow investors to trade shares through local brokerages.

The existing stock connections with Hong Kong give investors access to a large number of stocks, while the Shanghai-London trading system is more limited in its scope.

Mainland Chinese retail investors are barred from trading depository receipts (DR) floated by international companies in Shanghai unless they have investment capital of at least 3 million yuan (US$435,000).

China mulls 'end to foreign ownership limits' on financial firms

"The listing of DR shares by British firms will offer mainland investors new investment options to diversify their risks," said Zhang Yulong, chief strategy analyst with China Securities.

"As the regulator will take a go-slow approach in approving the issuance of the DR shares in Shanghai, it will not largely dilute existing holdings on the mainland market."

Huatai's depository receipts rose 2.4 per cent to US$21 at the open in London this morning.

Hong Kong-listed shares of Huatai gained 1.5 per cent to HK$11.76 at the close on Monday. Its mainland-traded A shares inched up 0.9 per cent to 19.45 yuan.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.