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FII can now trade Shanghai A Shares

The following article from the South China Morning Post confirming that the China Securities Regulatory Commission will now allow “expanded” access to the Shanghai “A” Shares market for foreign individual investors.  The trading must be conducted through local Chinese brokers and is open to investors from countries such as the U.K., U.S., Japan, Singapore and Australia.

While this is good news it is mostly symbolic as many foreign individual investors are concerned with entrusting their investments to Chinese brokers and often unsure about the quality of the listed company’s financial information.  Most institutional investors know that the quality of listed companies and value opportunities on the Shanghai and Shenzhen exchanges are difficult to find, although improving each year. Our corporate clients are currently looking at the safety, quality and access to capital provided by the U.S. capital markets specifically the NYSE and NASDAQ as well as the low cost and ease of entry in Singapore and Hong Kong.  While they are Chinese SME’s with established businesses and financials, they would prefer to raise capital for business expansion through the U.S. capital markets which remain the most reliable and high performing in the world.

China approves proposal to allow foreign individual investors to trade A shares through domestic brokerages

Monday July 9, 2018 Laura He – South China Morning Post

Foreign individual investors from 62 countries and territories will have expanded access to trade A shares under the proposal by the China Securities Regulatory Commission, which has been given a tentative go ahead by the State Council

China’s top securities regulator announced on Sunday that it plans to allow foreign individual investors to trade domestic A shares through local brokers, reflecting the latest step in widening foreign access to the country’s US$6.4 trillion stock market.

The China Securities Regulatory Commission said it has received a tentative green light from the State Council on a proposal to allow foreign individual investors to open accounts at domestic brokerages to trade yuan-denominated A shares listed in Shanghai or Shenzhen.

The CSRC is seeking public input on the proposal and expects to make its findings available at a later date.

The measure is aimed at “further opening up China’s capital market”, the CSRC said in a statement.

“The measure can … expand the investor base, introduce more liquidity, improve the investor structure, and make the A share market more open and international,” the regulator said.

Still, not all foreign individual investors are eligible to qualify under the proposal. The CSRC said eligible foreign investors must come from countries or regions that have signed regulatory cooperative agreements with the Chinese securities regulator.

So far, 62 countries or regions have signed such agreements with China, including Hong Kong, US, UK, Singapore, Australia and Japan.

Hao Hong, managing director and head of research for Bocom International in Hong Kong, said it may be a gesture by China to show it is willing to continue widening foreign access to the financial market.

Also, it could be an effort by the regulator to support the market on a confidence level given the recent turmoil on the A share market, he said.

“But the impact on the market may be limited given the size of eligible foreign investors and how many of them are actually willing to trade A shares through local brokers,” Hong said.

The Shanghai Composite Index has recently entered a technical bear market, hitting the lowest level in 28 months as investors remain jittery about a potential prolonged trade war between China and the US.

The CSRC currently only allows selected foreign individual investors to open domestic brokerage accounts, such as those who have obtained permanent residency rights in China or foreign employees of listed A share companies who currently live in China.

Foreign individual investors are limited to buying A shares through brokers in Hong Kong who must go through the Hong Kong stock exchange, which is linked to the Shanghai and Shenzhen stock exchanges.

Foreign institutional investors who meet certain criteria can also access Shanghai or Shenzhen markets through the Qualified Foreign Institutional Investor programme.