Is the Stock Connect fuelling a pan-Asian bull market?

Added 13th May 2015

Is the Stock Connect fuelling a pan-Asian bull market?

Following the investor enthusiasm and record turnover sparked by the Hong Kong-Shanghai Stock Connect, other market linkages such as the upcoming Shenzhen and Hong Kong Connect, are in the works. 

Singapore and Taiwan have plans to link their stock markets in July, regulators have said publicly. 

The China Securities Regulatory Commission said it was studying cross-strait trading between Shanghai and Taipei, according to Bloomberg report.

Market integration has spurred global investor interest in Asia. "It seems that the China bull story is having a halo effect on the rest of Asia," Tinker said in his latest research note. 

"Korea has been strong, Japan has broken up through 20,000 on the Nikkei and Taiwan is also hitting 15 year highs - fuelled by rumours of a Shanghai Taiwan connect."

Wider bandwidth for Stock Connect

The recent record turnover in Hong Kong, driven by Chinese capital flows, has only begun, added Helen Zhu, BlackRock's head of China equities.

The China A-share market has nearly doubled in the last 12 months and it recorded daily turnover of $290bn, Zhu said. The Hong Kong market is up 30% since March 2014 and reached a record $37bn daily turnover. 

Zhu said structural reform progress has been a driver of returns, but the catalyst for the multiplied trading volumes was the CSRC's announcement that domestic funds (even those without QDII quota) would be allowed to invest in the Hong Kong market via the Mutual Market Access (MMA) scheme. 

Still, the A-share and H-share markets remain largely separate. But "further loosening of capital controls and opening up of the two markets' access is just a matter of time.

"For example, more retail and institutional investors will be able to use the MMA over time, QFII/RQFII/QDII quotas are likely to be meaningfully upsized, the Shenzhen Stock Connect to come later this year will probably increase the list of investible stocks on both sides as well as the daily and cumulative trading volumes allowed."

When the capital account opening is complete, "the A-share market will be completely open to global investors while domestic investors will also have full freedom to 'go out.'"

The timing for merging the Hong Kong and China pools of capital, she added, will "continue to positively surprise".


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