China To Embrace Foreign Investors

China To Embrace Foreign Investors

Chinese shares suffered a mediocre performance today, but good news may be on the way.

China To Embrace Foreign Investors
China To Embrace Foreign Investors

Starting next week, China will open a link between Hong Kong and Shanghai, allowing foreign investors to buy shares on the Shanghai Stock Exchange and permitting investors on mainland China to purchase stocks on the Hong Kong exchange.

Chinese officials are optimistic that the move will stabilize the market and negate the chaotic, rapid-fire trading of small investors that has dominated China’s stock exchanges. Investors will gain access to about $2 trillion USD worth of Chinese companies.

Previously, foreign traders could only trade on Chinese stocks listed in Hong Kong or New York. Those listed in Shanghai – called A-shares – were only available via a quota system.

“We think it is very significant. We plan to participate,” Gary Greenberg, head of emerging markets at Hermes Investment Management in London, told The Wall Street Journal. “We find the A-share market very interesting, [as it provides] access to a much wider scope of businesses than available through” Hong Kong and New York.

After the program gained approval yesterday, Chinese shares improved on the day. Once the system opens next week and investors get their first taste of the new Chinese offerings, indices could rally once again.

Shares decline on the day
Despite the upcoming shift, Chinese stock indices declined today as mid-caps shares’ losses eclipsed strong bank performances, according to Bloomberg.

The SSE 380 Index fell 2.7% - its biggest drop in two months. Inner Mongolia North Hauler Join Stock Company and Shanghai East-Chine Computer Company both lost the maximum daily amount of 10%. The Shanghai Composite Index regressed 0.2% after yesterday’s 2.3% gain. Meanwhile, Bank of Chine Ltd. Added 10% and Agricultural Bank of China Ltd. Rose 5.5%.

“There’s a rotation of fund flows and it’s coming from the mid caps today,” Chen Ruiming, strategist at Haitong Securities Co. in Shanghai, told Bloomberg. “The blue chips such as the financials are gaining today. The volumes are huge because the link has ignited trading interest.”

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