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Treasury & Capital Markets
Challenges face Stock Connect following market crash
The dramatic drop in turnover of at the Shanghai-Hong Kong Stock Connect following the crash of the A-share market in August 2015 may be an indication of the difficult challenges that continue to plague China’s rather innovative exchange platform in 2016
Bayani S Cruz 5 Feb 2016
 
The dramatic drop in turnover of at the Shanghai-Hong Kong Stock Connect following the crash of the A-share market in August 2015 may be an indication of the difficult challenges that continue to plague China’s rather innovative exchange platform in 2016.
 
Although the platform can be hailed as an “operational success” following its launch in November 2014 the fact that turnover is at the mercy of highly volatile market forces is renewing some doubts among skeptics about its overall effectiveness in terms development of China’s equity markets.
 
Before the July to August 2015 crash, when the Shanghai stock market crashed by 30 percent over a three-week period, turnover at both the Shanghai and Hong Kong ends of the stock connect had been rising steadily since its launch.
 
By December 2015, turnover at the Shanghai end of the Stock Connect had plummeted by 73% to just 62.5 billion renminbi from its peak of 227.2 billion reminbi in June, according to data from the Shanghai Stock Exchange (SSE). (see below)
 
At the Hong Kong end of the stock connect, turnover also plunged by 42% to just 37.6 billion renminbi in December from it previous level of 65.3 billion renminbi in June.
 
But despite the dramatic fall in volumes the Hong Kong Stock Exchange (HKEX) remains confident that the Stock Connect model is the way to go in terms of further building its business in China.
 
In fact the HKEX strategic plan for 2016-2018 hails the Stock Connect as a “breakthrough” and the “most competitive and convenient cross-border access platform” for both Chinese and international clients seeking exposure to each other’s markets.
 

“We will extend the scope and product range available under Stock Connect, and seek to enable primary cross-border capital raising,” says HKEX Chief Executive Charles Li in his elaboration on HKEX’s Strategic Plan 2016-2018. 

 

Shanghai-Hong Kong Stock Connect Turnover
 
 
SH turnover in value (100 million RMB)
HK turnover in value (100 million RMB)
Dec-15
625.7
376.28
Nov-15
1009.67
309.96
Oct-15
709.08
226.3
Sep-15
818.77
207.83
Aug-15
1207.11
415.26
Jul-15
1962.84
733.76
Jun-15
2272.14
653.19
May-15
1505.52
815.65
Apr-15
1551.12
1859.41
Mar-15
1375.3
282.38
Feb-15
674.93
80.85
Jan-15
998.7
242.76
Dec-15
1209.23
145.46
Nov-15
465.89
60.17
Source: Shanghai Stock Exchange
  
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