TAIPEI, Taiwan (TheStreet) -- Shanghai has long claimed to be as good a financial hub as Hong Kong. But Shanghai lacks a fully open stock market because Chinese government regulations impose quotas on foreign investment in the Shanghai exchange's A shares. Hong Kong's market is open to anyone.
Now China is poised to let the Shanghai-listed shares of 568 big Chinese companies trade on the Hong Kong exchange. The new linking program is called Stock Connect.
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This is good for foreign investors without qualified foreign institutional investor, or QFII, licenses or with small China investment quotas. Eventually foreign investors will be able to buy and sell the same shares long traded by institutions with quotas for mainland China, including Shanghai.
More openness may follow.
"The Stock Connect program is a first step to replace quota schemes, as in the future the Chinese capital market will most probably be open to international investors," says Denis Suslov, a Shanghai financial analyst who runs the QFII data Web site China-XBR.com.
Institutions maxing out their mainland China quotas can top up with Stock Connect, he says. But be ready for declining relevance if there's a lot of quota room left. Mega-institutions such as BlackRock (BLK) and Invesco (IVZ) may suffer without the exclusivity quotas provide.
"It is too early to write off the quota holders, though their advantage will gradually disappear once Stock Connect proves to be successful," Suslov says.