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Asset Management / Wealth Management
Why Stock Connect will remain relevant for the next 20 years
Stock Connect plays crucial role in catering to investors not yet utilizing other market access schemes, such as QFII and RQFII
Bayani S Cruz 18 Jan 2018

THERE have been questions raised on how long the Stock Connect, the mutual access platform for A-shares between Hong Kong and China, will remain relevant considering the potential competition from similar Connect schemes that may be established in the future, particularly the London-Shanghai Connect.

In addition, other market access schemes, such as the Qualified Foreign Institutional Investor (QFII), Renminbi Qualified Foreign Institutional Investor (RQFII), and Mutual Recognition of Funds (MRF) schemes, effectively compete against the Stock Connect.

But the Hong Kong Exchange chief executive is confident the Stock Connect in its present form will exist for a prolonged period. His fearless forecast is 20 years, because of what he sees as the general profile of investors in relation to China market.

“I think the Connect will be here for 20 years. Why? Because every time, everyday, no matter where you look at it today, five years from now, or 10 years from now, there will always be three groups of people, internationally or in China,” Li said in a panel discussion during the recently concluded Asian Financial Forum (AFF) held in Hong Kong.

The first group are smart and entrepreneurial people with the resources to go to China directly through the QFII, or those who can invest overseas through Hong Kong. Li likens this group to PhD students. “They will go out of China or into China without anybody helping them. We are not helping them. They are not our business,“ says Li says.

The second group comprise overseas investors who have no interest in investing in China yet, and Chinese investors who do not yet have any interest in investing overseas or who have no means to do so. “They are like high school kids. They’re not our customers,” Li says.

The third group are Chinese investors who have enough interest, knowledge and resources to invest outside China, and overseas investors who have the interest, knowledge and resources to invest in China.

“These are the Connect customers. They are like college students. Every time people become more resourceful, like high school students graduating to college, they will need the Connect. When they are more resourceful and graduate from the Connect, there will be other high school students graduating to college who will taking their place. So we will be running the university for 20 years,” Li says.

The Stock Connect is expected to experience a breakout year in 2018 in view of the forthcoming inclusion of 222 A-shares into the MSCI Emerging Markets Index in May (see article).

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