A long-delayed programme to link the London and Shanghai stock exchanges will officially launch on Monday, allowing global investors to access shares in Chinese companies and Chinese investors a chance to buy LSE-listed stock.
The scheme, originally scheduled to begin last year, will be launched on the sidelines of a visit by Chinese vice-premier Hu Chunhua to London, during meetings with UK chancellor Philip Hammond.
Chinese state-media reported that the Stock Connect scheme, first announced in 2015, was due to launch in December, but blamed uncertainty created by Brexit for the delay.
“London is a global financial centre like no other, and today’s launch is a strong vote of confidence in the UK market,” Mr Hammond will say. “Stock Connect is a groundbreaking initiative, which will deepen our global connectivity as we look outwards to new opportunities in Asia.”
The Treasury said that UK listed companies would be able to sell shares in China from Monday, and that this was the first time that any foreign company would be able to list in mainland China.
The scheme will differ from a similarly-named initiative launched between Hong Kong and Shanghai in 2014, as the London scheme is limited to trading in depository receipts rather than direct trade in company shares.
People involved in the scheme, who declined to be named, said that unresolved issues and administrative restrictions would render the London-Shanghai Stock Connect largely illiquid, at least at the start of its life.
“It is more of a symbolic move than a genuine opening of a new trading market,” said one person with knowledge of the project.
One of the unresolved problems is a mismatch in trading limits between Shanghai, which has a 10 per cent daily trading limit, and London, which has no trading limits.
Moreover, only some Chinese companies will meet criteria such as having a minimum market capitalisation of Rmb20bn ($2.9bn) to list under the scheme, according to the programme’s draft rules.
Chinese brokerage Huatai Securities said last week that it planned to raise as much as $2bn when it becomes the first Chinese company to list in London as part of the new link. It will sell global depositary receipts representing about 10 per cent of its outstanding share capital.
“Huatai will offer international investors exposure to China’s financial services market,” Zhou Yi, chairman of the brokerage, said.
China has been pushing policies to attract more inflows into its equity markets in recent years as increasing capital outflows put downward pressure on its currency.
Despite the Hong Kong connect, which allows investors in the former British colony to buy mainland China-listed shares worth Rmb52bn each day, Chinese stock markets were the world’s worst performing last year and the Shanghai exchange has suffered this year from concerns about the deepening US-China trade war.
“The Shanghai-Hong Kong stock connect has not had a large impact on Shanghai’s market, so investors are not very excited about the London connect,” said Zhu Bin, a strategic analyst at Chinese brokerage Southwest Securities.
Mr Hammond’s team say the contentious issue of Huawei’s involvement in the development of Britain’s 5G network is not formally on the agenda of Monday’s economic talks, but they expect it to be raised by the Chinese side.
The chancellor will repeat the government’s line that a security review is continuing into the Chinese telecoms company’s future role in Britain.
Additional reporting by George Parker in London