Stock connect spells new era of integration
The proposed ShanghaiLondon stock connect represents a major step forward in China’s opening-up process, as the nation continues to integrate with international markets, said Nikhil Rathi, chief executive of London Stock Exchange PLC.
Rathi said officials in the United Kingdom and China have been working toward a stock exchange link for years, and that he expects the connect to launch this year.
The link will allow Chinese companies to sell global depository receipts in the UK, so foreign investors can buy Chinese shares, and enable London-traded companies to list in Shanghai.
“We’re bringing together, in a structural way, the fastest-growing capital market in the world with the most international capital market in the world,” Rathi said. “We’ll provide, through a streamlined regulatory mechanism, new investment opportunities both in the international market here in London and in the very large Chinese market.”
For Rathi, the connect represents a significant milestone in London Stock Exchange Group’s four-year push to strengthen ties with China, which started with promotional roadshows to Beijing and Hong Kong in 2014.
Rathi joined LSEG the same year, as chief of staff and director of international development, before becoming chief executive at LSEG subsidiary London Stock Exchange PLC.
Under his leadership, the London exchange has seen bond issuances and capital raising from all major Chinese banks, it has become the largest offshore center for renminbi trading, and the London-based index business FTSE Russell has provided the largest international index benchmarking Chinese A shares.
Rathi said a lot of this success comes down to the strong pitch LSEG has been able to make to Chinese businesses. “We offer a highly respected regulatory framework that enables Chinese companies — some of the most exciting and fastestgrowing companies in the world — to immediately access the world’s largest pool of global capital through our market,” he said.
“The London Stock Exchange has a history of over 300 years. We’re a highly international market. We have the largest pool of interinternational national companies of any exchange, and we have a time zone which enables us to trade when Asian markets are still open, through European time, and into North American time.”
But it has not been all plain sailing. In his second year at London Stock Exchange PLC, the British government announced its plan to exit the European Union in 2019, sending shock waves through markets.
Rathi, who formerly worked as private secretary to prime ministers Tony Blair and Gordon Brown, joined British Chancellor Philip Hammond on a trade mission to China in December 2016 to demonstrate postBrexit opportunities for the financial services sector.
“Whatever happens in terms of the short-term discussions with the EU, that doesn’t change the quintessentially global nature of our business,” Rathi said. “China takes a very long-term approach to planning and also to financial services development.
“Four of the top 10 banks in the world are now Chinese, and they can see that there are fundamental strengths here in London — our language, our time zone, our regulatory framework, our history, the pools of global liquidity.”
Rathi said there has been continued Chinese growth and activity on the London exchange since the Brexit vote.
“The opening-up of China has been a very steady, gradual process that has generated significant economic benefits for the Chinese people, and I think the long-term vision of China has played an important role.”
Nikhil Rathi: “Green finance is not just a commercial opportunity, it’s an existential issue — you only need to look at the statistics around the impact on health, from pollution and other effects of climate change, and China has chosen to play a leadership role on this agenda.”