Foreign investors trade A shares

Rule change seen as significant step to further open mainland’s equity markets

Monday was the first trading day foreign individuals working on the Chinese mainland were allowed to trade in the country’s A-share market. It marked a milestone in financial market opening-up, analysts said.

Individuals from overseas who work in China, as well as A-share listed companies’ foreign employees living overseas who are granted stock option incentives, were allowed to open A-share accounts and trade freely in the market from Saturday. The change was announced by China Securities Depository and Clearing Corp Ltd in a statement published on Aug 15.

Before the reform, only foreigners with permanent residency in China had been allowed to trade freely in the A-share market.

Foreign investors from a wide range of countries and regions are now included, as long as their respective countries’ securities regulators have signed cooperation partnership agreements with the China Securities Regulatory Commission, according to the statement.

So far, the CSRC has signed such agreements with 61 countries and regions, including the United Kingdom, Australia and Singapore.

“The reform is a big step for financial market openingup,” said Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology. It is partly because the reform gives many more foreign individual investors the “national treatment” — the same treatment as locals — in gaining access to China’s capital market, according to Dong.

“Before the reform, foreign individual investors faced restrictions on investment amounts and targets under the stock connect program between the mainland and Hong Kong bourses, which was a major approach for them to access A shares,” Dong said. But the reform allows many of them to trade A shares directly with no restrictions, just as local residents do, he said.

Yuan Guangping, a portfolio investment manager at Beijing StarRock Investment Management Co Ltd, said that A-share investors becoming more diversified after the reform will enhance market liquidity and optimize the capital market structure.

CSDC’s statement stipulated four elements are required for a foreign individual to open an A-share account, including an application form, their passport and a photocopy, a certificate of employment, and a photocopy of the employer’s business license.

Currently, opening an account is done in person because all the certificates need to be reviewed manually, reported a social media outlet of Shenzhen-based stcn.com. In contrast, Chinese citizens can open an A-share account simply by using their ID card online.

Other more fundamental factors may also hinder foreign individuals from investing in A shares, analysts said.

Individuals from the United States and Europe working in China, usually high-networth investors employed as senior managers, may not have strong incentives to invest in the A-share market, since they can easily invest in more mature capital markets back home, Dong from WUST said.

Hong Hao, chief strategist at BOCOM International Holdings Co, said the amount of capital inflow prompted by the reform may not be considerable in the short term, given the limited number of foreign investors included in the new regulation and the current lukewarm investment environment in the A-share market, reported Shanghai-based thepaper.cn.

China’s stock markets dipped on Monday, with combined turnover hitting 206.78 billion yuan ($30.1 billion), a new low since two and a half years ago.

Zhou Lanxu and Wang Yanfei contributed to the story.