Commentary

Shanghai-London stock link was always just a pipe dream

Interest has been minimal and volumes thin even as Beijing denies reports of suspension

It is always easier to put up a barrier on an empty road than on a busy highway.

That's worth remembering, now that China has suspended cross-border listings between the Shanghai and London stock exchanges. The halt is a response to Britain's stance on pro-democracy protests in Hong Kong, Bloomberg News reported, citing a person familiar with the matter, and any resumption would depend on how diplomatic relations proceed.

China yesterday denied the reports that the link had been halted. The China Securities Regulatory Commission, the country's securities watchdog, said operations at the link had been "normal" since its launch in June.

The pipeline between these two major financial hubs was launched with the aim of allowing companies listed on one exchange to issue shares on the other. The programme was feted as a vote of confidence in a shrinking British IPO (initial public offering) market: 2019 marked one of London's worst years in a decade for new listings, as companies that were worried about Brexit delayed their capital-raising plans. As recently as September, optimism remained intact. The London Stock Exchange even cited the Connect programme as a better way to forge ties with China when it snubbed a bid by Hong Kong Exchanges & Clearing last year.

But interest has been minimal. Seven months in, just one mainland firm has used it: Huatai Securities, which raised US$1.7 billion (S$2.3 billion) in a British IPO in June. While its stock has surged, volumes were thin. Last month, an average of 123,914 London-listed shares changed hands daily, compared with 106 million for their Shanghai counterparts, according to data compiled by Bloomberg. SDIC Power Holdings was set to be the second Chinese company to list there, yet it postponed plans last month, citing market conditions.

On the other end of the link, not a single British company went public in Shanghai. Talk that HSBC Holdings would be London's first candidate has gone ominously quiet since the British lender entered Beijing's bad books for providing information that led to the arrest and prosecution of Meng Wanzhou, chief financial officer of Huawei Technologies.

The Shanghai-London Stock Connect never made much sense for Chinese firms from a capital-raising perspective. Unlike New York, London doesn't have a deep bench of institutional players eager to get their hands on mainland start-ups. In most markets, investors are biased towards stocks they recognise.

And while the pipe enabled Chinese and British companies to raise money in each other's markets, investors weren't allowed to trade between exchanges, as they do with similar links between Hong Kong and the Shanghai and Shenzhen exchanges.

It's worth noting that China hasn't blocked its firms from going public in the US, which has also shown support for Hong Kong's protesters. Mainland companies listed on the New York Stock Exchange and Nasdaq have a current market value of about US$1.5 trillion, according to data compiled by Bloomberg.

Given that China Pacific Insurance Group and SDIC Power were slated to raise offshore money from listings in London through this pipe, the real losers of a prolonged suspension might be mainland companies. If that's the case, the link could very well be reinstated at some point.

BLOOMBERG

• Nisha Gopalan is a Bloomberg Opinion columnist covering deals and banking. She previously worked for The Wall Street Journal and Dow Jones as an editor and a reporter.

A version of this article appeared in the print edition of The Straits Times on January 04, 2020, with the headline 'Shanghai-London stock link was always just a pipe dream'. Print Edition | Subscribe