Shanghai-London Stock Connect continues to optimize post-Brexit
By Chen Tong
After nearly four years, Britain finally reached its Brexit agreement last week. The settlement said nothing about London's financial markets, however, there may well now be finance firms planning to transfer their focus to other European banking centers. Where does all this leave the Shanghai-London stock connect, China's financial tie with UK markets?
The Shanghai-London Stock Connect was launched in 2019. However, the capital link quickly ran up against the COVID-19 pandemic, and so far only four Chinese firms have successfully issued stocks via the link - Huatai Securities, Pacific Insurance, Yangtze Power, and SDIC Power. Given the circumstances, it's only natural that the stock connect's development would have been slowed, said Jonathan Ha, CEO of Seneca ESG.
"The stock connect between London and Shanghai did take a while to come to fruition. I don't think either side will let it go quietly," said Ha. He cautioned that it may take longer for the stock connect to get to the target scale due to the COVID-19 and Brexit impact.
"I think regulators and market participants have adjusted their expectations accordingly," he added.
It was estimated that 260 companies listed in Shanghai would be eligible to list in London, but as things have turned out, nothing like that has occurred. Earlier this year, the London Stock Exchange said several British companies were planning to issue shares in the China market, but nothing has been moving on that front either. Experts do point out, however, that the potential for the connect remains very much in existence - and that any move west from Shanghai to London will bring more investors into yuan assets.
"The good news is that compared with many major economies, China controlled the virus pretty well. So now the yuan assets are pretty welcomed around the world," said Jimmy Zhu, chief strategist of Fullerton Research.
He predicted that the appreciation of the Chinese yuan will continue into 2021 as the U.S. Fed continues with an easing monetary policy, and the dollar continues to weaken.
"No matter from the currency or investment perspective, when it comes to overseas investors, especially in western countries, their enthusiasm in Chinese assets will probably increase from here," Zhu commented.