As an institutional innovation in the opening up of China's capital market, Shanghai-Hong Kong Stock Connect ushered in its fourth "birthday" on November 17, 2018. In the past four years, the Shanghai-Hong Kong Stock Connect system has been continuously optimized and improved on the basis of smooth operation, and has continued to promote the integration of the markets in China’s mainland and Hong Kong and enhance the two-way opening of the domestic capital market.
The Shanghai-Hong Kong Stock Connect has recorded a total turnover of more than RMB10 trillion.
The latest data shows that by November 16, 2018, the Shanghai-Hong Kong Stock Connect had registered a total turnover of RMB10.31 trillion in its exactly 4 years of operation. Specifically, Shanghai Stock Connect posted a turnover of RMB6.05 trillion with an average daily turnover of RMB6.502 billion in a total of 930 trading days; Hong Kong Stock Connect recorded a turnover of RMB4.27 trillion with an average daily turnover of RMB4.677 billion in a total of 912 trading days.
Since January this year, the Shanghai Stock Connect has seen its turnover reach RMB2.35 trillion with the average daily turnover at RMB11.625 billion. Since the end of March, the northbound capital has continued to flow into the A-share market, representing an obvious trend with a total inflow of about RMB150 billion and demonstrating the confidence of overseas funds in the A-shares market.
In 2018, Shanghai-Hong Kong Stock Connect experienced three major events, including the expansion of the daily quota, the inclusion of the A shares into the global index systems, and the introduction of the Northbound Investor Identification Code.
The daily quota for the Shanghai-Hong Kong Stock Connect has been quadrupled.
On April 11, 2018, Yi Gang, Governor of the People's Bank of China, announced at the Boao Forum for Asia that starting on May 1, the daily quota for the Shanghai-Hong Kong Stock Connect will be expanded fourfold. On the same day, the China Securities Regulatory Commission (CSRC) and the Hong Kong Securities and Futures Commission (SFC) issued a joint statement, announcing to adjust the daily quota for the Shanghai Stock Connect from RMB13 billion to RMB52 billion, and that for the Hong Kong Stock Connect under the Shanghai-Hong Kong Stock Connect from RMB10.5 billion to RMB42 billion, which shall come into effect as from May 1. Further deepening the interconnection mechanism, the substantial expansion of the daily quotas has improved the two-way opening of the mainland capital market, better met the investment demands of the investors in the two regions, and played an important role in facilitating the successful inclusion of A shares into the MSCI index and maintaining the stable operation of the market.
A shares have been successfully incorporated into the global index systems.
At the closing on May 31, 2018, a total of 226 A stocks were officially included in the MSCI Emerging Market Index, with a 2.5% share; at the closing on August 31, another 10 A constituent stocks were added, with the share increased to 5%. In addition, on September 27, FTSE Russell announced that it will include A shares in its global stock index system, with the inclusion to take effect as from June 2019. The successful inclusion of A shares not only reflects the foreign investors’ recognition of the achievements in the reform and opening up of China's capital market, but also expresses their confidence in the future prospects for the development of the market. The inclusion of A shares in the global index systems will encourage more international investment funds to flow to the Chinese capital market, improve the structure of the investors, and further elevate the international level of the A-shares market.
The Northbound Trading Investor Identification Code system has been launched smoothly.
On September 26, 2018, the northbound see-through mechanism for the Shanghai-Hong Kong Stock Connect was officially launched. On October 22, the front-end control function for the northbound trading orders based on the investor identification code was officially enabled, and the trading orders that do not meet the requirements will be rejected. While attracting overseas funds, the Shanghai-Hong Kong Stock Connect system has also posed a test to the market regulation. With the opportunities and challenges coexisting today, the establishment of the northbound see-through mechanism will help the SSE to bring the frontline regulatory functions into full play, improve the cross-border regulatory cooperation mechanism, combat cross-border market manipulation and other violations, and maintain the stable operation of the A-shares market, in a bid to provide a good market environment for the investors at home and abroad.
This year, the SSE has continued to earnestly implement the decisions and arrangements made by the CPC Central Committee and the State Council for the capital market, and under the leadership of the CSRC, the SSE has further advanced its internationalization strategy and achieved a number of breakthrough results. First of all, in terms of the two-way opening of the capital market, with the support of the CSRC, the SSE and the London Stock Exchange (LSE) have jointly promoted the preparations for the Shanghai-London Stock Connect business, and on November 2, the supporting business rules for the depository receipts (DRs) under the Shanghai-London Stock Connect were announced and implemented. Secondly, with regard to the position of the SSE at the international organizations of the exchange industry, at the 58th World Federation of Exchanges (WFE) General Assembly held in October this year, Huang Hongyuan, Chairman of the SSE, was elected as a member of the WFE Board of Directors, which will be important for the SSE to advance the process of internationalization, implement the new idea of China’s participating in the global industry governance, and improve the global influence of Shanghai as an international financial center. Thirdly, in the aspect of international exchanges and cooperation, this year, the SSE has signed memorandums of understanding on cooperation with the New Zealand Stock Exchange (NZX), Euronext, and the Japan Exchange Group (JPX), so as to continue to strengthen exchanges and cooperation with overseas exchanges and create a long-term communication mechanism. Currently, the SSE has inked memorandums with 48 overseas exchanges.
Going forward, the SSE will, under the leadership of the CSRC, continue to optimize and improve the interconnection mechanism, further propel the internationalization process, enhance its influence in the international market, and push forward the two-way opening of China's capital market.