A major change is underway in the structure of the Chinese stock market - and by extension the global stock market.
The expected launch of the "Stock Connect" link between the Shanghai and Hong Kong stock exchanges on November 17, 2014, will relax restrictions that historically split the Chinese stock market between shares targeted at local investors and those available to international investors.
The Shanghai-Hong Kong Stock Connect will allow mainland Chinese investors to purchase select Hong Kong and Chinese companies listed in Hong Kong, and will let foreigners buy Chinese A shares listed in Shanghai in a less restrictive manner than has previously been the case.
The new regime may unleash significant fund flows in both directions as mainland investors get the chance to invest in major Hong Kong and Chinese companies that are listed only in Hong Kong, and as foreign investors gain access to the A-share market. Quotas will limit the size of the flows in either direction.
The scheme creates a single ‘China’ stock market that will rank as one of the three biggest in the world by market cap and daily trading turnover. For international investors, it adds more than 800 companies of US$1 billion or greater market capitalization to the investable universe. The move may help diversify the portfolios of Chinese investors, increase efficiencies for trading in Chinese companies that are dual-listed on both exchanges, and prompt rapid inclusion of Chinese stocks in global benchmark stock indices.
Given the magnitude of the changes, the Global Investment Research Division published a report, "SH-HK Connect: New regime, unprecedented opportunity" to help investors analyze the potential effects and structural investment opportunities. The report also explores the market impact of the liberalization and the future roadmap of the new trading regime.
http://www.goldmansachs.com/our-thinking/trends-in-our-business/stock-connect/report.pdf
