Shanghai London Stock Connect: how do Asian investors benefit?
Karen Northey, Head of China International Markets, London Stock Exchange Group
The China growth story is a compelling one for many Asian investors. Yet up until now, investor access to the country has been relatively limited and fairly complex. That is changing and the Shanghai London Stock Connect is facilitating this change.
Formally launched on 17 June 2019, it offers international investors the opportunity to invest in high quality Chinese issuers through Global Depositary Receipts (GDRs) a security that is fungible (that is, one that can be exchanged for) a company’s Chinese A share listing.
For investors, the key features of the GDRs are that they are only issued by Shanghai listed companies with a market capitalization over RMB 20m; they are approved by both the China Securities Regulatory Commission (CSRC) and the UK Listing Authority (UKLA), which includes production of a full English language UKLA approved prospectus. The securities can then be traded on London Stock Exchange’s International Order Book and will follow London’s rules, and trading and settlement practices.
The GDRs offer investors exposure and access to blue chip Chinese corporations, using London’s familiar market mechanisms and processes. Trading on Shanghai London Stock Connect al so crucially makes use of London’s central time zone with trading available from 9am to 4:30pm London time.
For the blue-chip Chinese corporations, the Shanghai London Stock Connect opens up access to London. As the most international market in the world, London offers these issuers a truly broad, deep and diverse global investor base.
Huatai Securities was the first company to grasp these advantages by listing on Shanghai London Stock Connect. Its $1.7bn listing generated considerable global interest from investors and has seen healthy trading volumes.
We have been in dialogue with Shanghai listed companies about their international growth aspirations and how Shanghai London Stock Connect might help to deliver these. Many have expressed a great deal of interest and we expect to see momentum gathering as new issuers come to market. Naturally, there will be pioneers while others will take a wait and see approach; and given that the process requires a prospectus and approval in both China and UK, a listing represents a significant undertaking.
For retail investors, Shanghai London Stock Connect heralds a new era. They now have additional opportunity to trade the shares of a growing number of large and well-known Chinese companies. They also have greater access to information about those companies thanks to the UK’s globally respected regulatory and legal system which makes securities listed on our markets an almost universally accepted currency Shanghai London Stock Connect will also enable Chinese investors to invest directly in high quality London listed companies through a similar mechanism Institutional and qualified individual investors will be able to trade in Chinese Depositary Receipts (CDRs) of London listed companies, which must have a market capitalization of more than RMB20m and have been listed on the London Stock Exchange for at least three years. The CDRs will be traded on the Main Board of the Shanghai Stock Exchange. It will the first time that Chinese investors will be able to access non-Chinese companies directly in their home market using all the rules and mechanisms of the Shanghai Stock Exchange.