Shanghai-London deal to enable investors to trade stocks on each other's markets

The launch of a trading link between the Shanghai and London stock exchanges will mark an important step in China further opening its capital market to international investors and will also attract long-term overseas capital, which will help stabilize the Chinese market, analysts said on Monday.

China and the United Kingdom have moved a step closer to launching the trading link by completing the feasibility study, according to senior officials of the two countries at the ninth China-UK Economic and Financial Dialogue held in Beijing over the weekend.

The trading link may come earlier than expected and will likely be officially launched next year as the regulators have resolved trading difficulties such as the time difference and have sorted out technical arrangements as well as the settlement and legal issues, people familiar with the matter told China Daily.

The program, first proposed in 2015, will allow investors in each country to trade shares listed on the other's stock exchange. It was speculated earlier that Brexit might delay the launch of the trading link as Chinese regulators would worry about the economic and political uncertainties. But the latest statement showed that the two countries have actually speeded up the process of connecting the stock exchanges.

The Shanghai Stock Exchange said in a statement on Sunday that the feasibility study has been submitted to the regulators of the two countries and that the two exchanges have agreed to facilitate the cross-border trading through a depositary receipt system. Under such a system, qualified listed companies can transfer part of their shares to a custodian bank, which sells them on the exchange board.

The launch of the trading link will mark an elevation of China's integration with the global markets as London represents a major global financial center with a pool of very international and diversified investors, said Dong Dengxin, a finance professor at Wuhan University of Science and Technology.

"It will help attract more overseas institutional investors that wish to gain access to the high-growth Chinese companies. Chinese investors could also take advantage of the low valuations of shares listed on the London bourse," Dong said.

The trading link has been welcomed by international asset managers such as BlackRock Inc. Rachel Lord, head of Europe, Middle East and Africa at BlackRock, said that the firm looks forward to the rising two-way capital flows between China and overseas capital markets and added that the greater presence of international investment will provide long-term capital and help with the stabilization of the Chinese market.