International buyers snapped up Chinese stocks on Monday at the debut of an exchange link that allows Hong Kong and Shanghai investors to trade shares on each other's bourses, a major step towards opening China's tightly controlled capital markets. Here's a look at how the scheme works:
WHAT IS THE AIM OF THE SCHEME?
The Shanghai-Hong Kong stock connect gives China a controlled mechanism to open up its equity capital markets, allowing foreigners to access China's mainland 'A' shares through the Hong Kong exchange (HKEx), and for mainlanders to access Hong Kong shares through the Shanghai exchange, subject to quotas.
HOW DOES IT WORK?
Investors in Hong Kong and abroad will trade through a Hong Kong broker which will send the order to HKEx, which then passes it to Shanghai. The process is mirrored when mainland participants trade Hong Kong shares. Shanghai shares remain in Shanghai and are held in trust by a broker or custodian on behalf of the foreign investors. Hong Kong shares remain in Hong Kong, and are held in trust by a broker or custodian on behalf of mainland Chinese investors.
Purchases of mainland stocks are capped at 13 billion yuan a day and 300 billion yuan in total on a "first-come, first-served" basis. The Hong Kong stock limits are 10.5 billion yuan daily and 250 billion yuan overall.
WHAT ARE THE IMPLICATIONS FOR CHINA'S CAPITAL MARKETS?
In the short term, the scheme is expected to generate a surge in Hong Kong trading volumes and a smaller impact in Shanghai. Analysts say it has the potential to create the world's third-largest stock market if the two boards are fully integrated.
WHAT IS THE AIM OF THE SCHEME?
The Shanghai-Hong Kong stock connect gives China a controlled mechanism to open up its equity capital markets, allowing foreigners to access China's mainland 'A' shares through the Hong Kong exchange (HKEx), and for mainlanders to access Hong Kong shares through the Shanghai exchange, subject to quotas.
HOW DOES IT WORK?
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Trading of Shanghai shares via Hong Kong will be open to all Hong Kong and overseas investors - institutions and individual - while trading of Hong Kong shares via Shanghai will be open to all mainland institutions and individuals with at least 500,000 yuan ($80,000) in a trading account.
Investors in Hong Kong and abroad will trade through a Hong Kong broker which will send the order to HKEx, which then passes it to Shanghai. The process is mirrored when mainland participants trade Hong Kong shares. Shanghai shares remain in Shanghai and are held in trust by a broker or custodian on behalf of the foreign investors. Hong Kong shares remain in Hong Kong, and are held in trust by a broker or custodian on behalf of mainland Chinese investors.
Purchases of mainland stocks are capped at 13 billion yuan a day and 300 billion yuan in total on a "first-come, first-served" basis. The Hong Kong stock limits are 10.5 billion yuan daily and 250 billion yuan overall.
WHAT ARE THE IMPLICATIONS FOR CHINA'S CAPITAL MARKETS?
In the short term, the scheme is expected to generate a surge in Hong Kong trading volumes and a smaller impact in Shanghai. Analysts say it has the potential to create the world's third-largest stock market if the two boards are fully integrated.