If proxy indicators are to be trusted, investors will welcome with a bang a key further opening of China’s Shanghai stock market to foreigners next month, writes James Kynge.
Several portents of a rousing reception await the launch of the “Shanghai-Hong Kong Stock Connect”, which is set to offer Hong Kong and foreign investors with offshore renminbi (CNH) the most unfettered access yet to the Shanghai market.
Investors availing themselves of CNH have helped drive the currency’s three-month interbank rate to a 2014 high of more than 3 per cent in recent days, up from 1.5 per cent in June.
The price gap between the Hong Kong-listed and Shanghai-listed shares of mainland companies with dual listings has narrowed sharply as arbitrage intensifies.
Some financial institutions, including Deutsche Bank, have had to shut Chinese exchange traded funds (ETFs) to new investment because of capacity constraints.
Analysts have observed strong interest from investors around the world in the scheme, which is expected to be launched in October, although Beijing has yet to fix a firm date.
The scheme creates pressures to reorganise global investing.
One pressure it exerts is upon the vendors of global stock indices, such as MSCI, which face a choice between diluting their influence if they do not accept A-shares into their indices and diluting their standards if they do.
Another force to be unleashed by the Shanghai-Hong Kong link is for the further internationalisation of the offshore renminbi.
The biggest inhibiting factor in the redback’s march toward acceptance as a global currency has been the paucity of investment opportunities.