China second stock link sees Beijing loosen its market grip

Investors monitor stock price movements at a securities company in Beijing on June 15, 2016.
Investors monitor stock price movements at a securities company in Beijing on June 15, 2016. PHOTO: AFP

BEIJING (BLOOMBERG) - China unveiled a second channel for foreign fund managers to buy equities and local savers to invest offshore, placing fewer restrictions on their activity in a sign that officials are growing more comfortable with opening up the nation's financial markets.

Regulators won't impose an aggregate quota on trading via the Shenzhen-Hong Kong exchange link, the China Securities Regulatory Commission said on Tuesday, while a cap will be removed for its Shanghai equivalent. There will be daily limits on net purchases for both connect programs.

The long-delayed link, which had been expected for more than a year, is part of China's efforts to internationalize its capital markets and increase their global influence to something more in line with the heft of the nation's economy. Barriers to foreigners wanting to trade the US$6.5 trillion (S$8.7 trillion) of mainland equities were one of the reasons that MSCI Inc. decided not to include the shares in its global benchmark indexes in June.

The removal of the overall quota marks the "further opening up of China's capital account and I am surprised it came now given China's capital outflow situation," said Hong Hao, Hong Kong-based head of research at Bocom International Holdings.

Foreigners have used about half their 300 billion yuan (S$60 billion) quota for buying Shanghai shares since the program began. Chinese traders have shown more appetite for investing in Hong Kong stocks, with less than 20 per cent of the 250 billion yuan quota left unfilled.