Hong Kong and Shanghai would link their stock exchanges on the 17th of November 2014 in a move that would grant foreign investors an unprecedented access to China’s stock market and create the world’s third-largest equity market. Shanghai-listed shares of 568 big Chinese companies would now be traded on the Hong Kong stock exchange and the new linking program is called as the Stock Connect.
Global investors would be able to buy, trade and invest in Chinese stocks directly from the stock market of Hong Kong and investors from China would be able to get access to the Hong Kong Stock market. Linking the Hong Kong and the Shanghai stock markets would effectively create the world’s third-largest equity market with a USD 5.6 trillion single market capitalisation, behind the New York Stock Exchange and the NASDAQ and ahead of London and Tokyo stock exchanges.
Chinese government regulations impose quotas on foreign investment in the Shanghai exchange’s A shares while there are no restrictions and quotas for investment in the Hong Kong’s stock market. This is good for foreign investors without qualified foreign institutional investor licenses or with small China investment quotas.
China imposes a 10% capital gains tax on non-resident investors buying equities, while Hong Kong imposes no tax. The move is therefore expected to see increase in participation from foreign investors to trade in Chinese stocks through the Hong Kong stock market.
