The Shanghai-Hong Kong Stock Connect initiative has received regulatory approval and will open on 17th November, marking the most substantial opening of the domestic equity market.
The system of quotas will favour more Northbound flows (flows from Hong Kong to Shanghai) over Southbound flows (flows from Shanghai to Hong Kong), it is understood.
In June 2014, MSCI decided not to include China A-Shares in its MSCI Emerging Markets index because of concerns around accessing the domestic equity market. The opening of the Connect Initiative should alleviate these concerns, paving the way for inclusion in the future.
The MSCI China A-Share index has returned 18.7% in the past six months and valuations remain attractive by historic standards.
Nitesh Shah, research analyst at ETF Securities, said: “China has historically been a very closed market to investors. This announcement will substantially increase market access, allowing investors to take advantage of the growth opportunities that exist in this country. We expect that the pent -up demand for Chinese domestic equities will drive the China A-Share market higher on the opening of the Connect initiative”.