The manager of a Swiss & Global fund that holds China equities says the recent Shanghai-Hong Kong stock market link has been a success 100 days on from its launch.

The manager of a China-focused equity fund at Swiss & Global says the Hong Kong-Shanghai stock market link, launched with much fanfare late last year, has so far been a success.

As a sign of its confidence, the Swiss firm's fund has a 15 per cent exposure to Chinese A-shares through participation notes using the Stock Connect programme, it said in a recent commentary 100 days after the launch of the link.

“The fund’s holdings in A-shares are mostly well-established companies trading at low valuations, mainly consumer and healthcare stocks as well as a couple of laggards in the financial sector,” Jian Shi Cortesei, manager of the JB China Evolution Fund, said in a brief note.

The rollout of the link last year was seen as among several measures undertaken by the Chinese mainland authorities to open up the country’s financial markets to foreign capital, and also to broaden use of the renminbi as a global currency. There have been some concerns, however: flows of money north to south have not, so far, been fully reciprocated. (For an article on this issue, see here.)
 
“The Stock Connect programme is an exciting development, and allows us to start investing in Chinese companies only listed in Shanghai, particularly in the consumer and healthcare industries,” the fund manager said.

“So far, the programme has been a success. The trading process has operated smoothly from day one without glitches. The trading volume has been far below the daily quota, as many foreign institutions are still waiting for regulatory approval or learning their way with Chinese A-shares, while domestic investors currently focus on domestic A-shares, which have had much stronger performance compared to Hong Kong-listed stocks. As a result, the market impact from the Stock Connect programme has been smaller than previously expected,” Jian Shi Cortesi said.

He said the smaller-than-expected market impact was an “ideal outcome” because a gradual market effect will avoid large, disruptive volatility and international investors will have time to adjust and get regulatory approval to trade in A-shares.

“The key catalyst for wide participation in the Stock Connect programme will be when the Chinese A-shares are included in the major indices (for example MSCI will be evaluating this later this year),” the fund manager added.

From 2 March, it will be possible for short-selling within the Stock Connect programme to start, and that has been seen as a positive development in boosting flows and liquidity.