London-Shanghai stock trading link proposed

British Chancellor of the Exchequer George Osborne (left) with Chinese Vice-Premier Ma Kai yesterday in Beijing. Mr Osborne said the study on the equity link will be discussed by the next round of the annual talks.
British Chancellor of the Exchequer George Osborne (left) with Chinese Vice-Premier Ma Kai yesterday in Beijing. Mr Osborne said the study on the equity link will be discussed by the next round of the annual talks.PHOTO: REUTERS

Chinese central bank introducing short-term yuan bonds in Britain, boosting London as yuan trading hub

BEIJING • Chinese and British officials will study the feasibility of setting up a London-Shanghai stock trading link and the People's Bank of China will issue short-term yuan-denominated bonds in Britain for the first time.

The debt issuance will be the first sale of such notes outside of China, and will help develop London as a yuan trading hub, British Chancellor of the Exchequer George Osborne said at a briefing in Beijing yesterday, after talks with Chinese Vice-Premier Ma Kai.

The study on the equity link will be discussed at the next round of the annual talks, Mr Osborne said.

Mr Benedict Cheng, a Hong Kong-based managing consultant at capital markets advisory GreySpark Partners, said a stock link would "logistically" be "very difficult". The study will need to overcome obstacles including different time zones, arrangements between brokers and clearing banks, and which currency the trades will be settled in, Mr Cheng said.

The Hong Kong-Shanghai exchange link, which began last year, was hailed as a major step in China allowing more foreign access to the world's second-biggest equity market. The Shanghai Composite Index soared 108 per cent from the programme's Nov 17 start to the equity measure's June peak.

The gauge has slumped 39 per cent since as local traders unwound margin debt and the outlook for the economy dimmed.

"It's in our interests that we have deeper and more mature financial markets across the world," Mr Osborne said. "That doesn't mean, of course, we're going to be immune as a world from financial shocks."

More than half of the 300 billion yuan (S$66 billion) quota for foreigners to buy mainland stocks remains unfilled, while Chinese investors have used the programme to put 89.2 billion yuan into the Hong Kong market, according to stock exchange data.

The proposed bond sale by the central bank comes as the finance ministry plans weekly auctions of three-month debt from next quarter to bolster the case for the yuan to win reserve-currency status at the International Monetary Fund.

China opened its interbank bond and currency markets to foreign central banks this year to encourage them to park more of their foreign-exchange reserves in yuan-denominated assets as it promotes increased global usage of the currency.

The Ministry of Finance has been selling yuan-denominated sovereign bonds in Hong Kong since 2009, with a minimum tenor of two years. BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on September 22, 2015, with the headline 'London-Shanghai stock trading link proposed'. Print Edition | Subscribe