Stock Connect is a financial mechanism launched a decade ago as a pioneering project to facilitate limited two-way capital flows between mainland China and the rest of the world via the Hong Kong Stock Exchange (HKEX). It has grown since then to become an integral part of the Special Administrative Region’s financial market infrastructure.
The story goes that the Stock Connect concept was conceived in 2012 when the then CEO of HKEX Charles Li Xiaojia met with Shanghai bourse chairman Gui Minjie in a Shenzhen teahouse where the two finance leaders jotted down – on the corner of a tablecloth – plans to link the Shanghai and Hong Kong stock markets.
Opening haul
Dubbed the ‘Through Train’ in its early years, the Shanghai-Hong Kong Stock Connect went live in November 2014 with a total of 569 stocks were available for trading through the (southbound) Shanghai exchange link, and another 273 through the Hong Kong (northbound) link.
Over the past decade, mainland investors have injected HK$3.3 trillion in HKEX
Before Stock Connect, the primary tool for overseas investors to tap into mainland China’s listed stocks was through the qualified foreign institutional investor programme, which required a lot of paperwork and time-consuming government approvals before investments could be made.
Stock Connect expanded in 2016 to include the Shenzhen stock exchange. Today, there are more than 3,300 stocks covering nearly 90% of the total market capitalisation and nearly 80% of the trading volume of the Shanghai, Shenzhen and Hong Kong stock markets, according to an HKEX report to mark the 10-year milestone.
According to the same report, over the past decade, mainland investors using the southbound channel have injected HK$3.3 trillion (US$440bn) in HKEX, while investors using the northbound channel have contributed 1.8 trillion yuan (US$250bn) to the Shanghai and Shenzhen stock markets.
At a recent summit marking the 10th anniversary of Stock Connect attended by high-profile officials and regulators from the Hong Kong and mainland China financial community, individuals who played an integral role in establishing the connect mechanism spoke about the joint efforts of regulatory bodies and financial institutions in both jurisdictions to roll out a steady stream of enhancements.
The introduction of bonds in 2017, exchange-traded funds in 2022, swaps in 2023 and wealth management products in 2024, has seen the scheme expand into other asset classes.
Mainland China’s Securities Regulatory Commission chairman Wu Qing told attendees that the regulator is accelerating a new round of opening up the mainland’s capital markets to facilitate cross-border investment.
The Stock Connect platform helps mainland companies to go global
Grand junction
In addition to providing financing for mainland Chinese enterprises, the Stock Connect platform helps mainland companies to go global, prompting the Hong Kong government to label the SAR a ‘super-connector’. The Connect programmes are also credited with expanding renminbi usage in international investment, promoting the currency’s internationalisation and strengthening Hong Kong’s unique position as an offshore RMB hub.
Meanwhile, financial practitioners point out the potential of incorporating green finance products that could align with global sustainability goals and reinforce mainland China’s commitment to carbon neutrality objectives.
Giving credence to the Chinese proverb ‘a journey of a thousand miles begins with a single step’, the Stock Connect programme continues to add carriages to its already lengthy train of asset classes on a route that is increasingly intercontinental.
