Reforms driving the internationalisation of the Chinese currency, the Renminbi, are rapidly being introduced. Approved companies can buy and sell exchange-traded bonds, A-shares, B-Shares and open- and closed-end exchange-traded funds (ETFs) listed on Chinese stock exchanges via two investment programs specifically designed to incentivise foreign investment. Recently, the Shanghai-Hong Kong Stock Connect program began providing foreign retail and institutional investors with access to a restricted set of A-Shares on the Shanghai Stock Exchange. Other steps in an incremental process to internationalise China’s capital account are also being developed.
The proposed mutual recognition of funds agreement between the Hong Kong Monetary Authority and the People’s Bank of China, which could be implemented in 2015, may provide foreign investors with more avenues to invest their money in China as well as provide Chinese investors with more ways to invest in international funds.
In February 2015, Chinese government restrictions on short-selling were lifted for foreign investors on the Shanghai Stock Exchange via the Shanghai-Hong Kong Stock Connect. This reform is likely to incentivise more hedge funds to participate in the program, and the change in investment approach across the market as a whole could have a dramatic effect on the risk profile of the largest securities exchange in China.
