Stock Connect a Start, not Enough for A-Shares Promotion, Says FTSE

The widely anticipated Shanghai-Hong Kong Stock Connect debuted Monday. Aimed at increasing securities trading between Hong Kong and mainland China, the Stock Connect program is also part of China’s efforts to further liberalize its sprawling financial markets to foreign investors.

The Stock Connect program is a step in the right direction, but not enough to merit a promotion of China’s A-shares equities to emerging markets status, according to index provider FTSE Group.

“However, despite the widespread euphoria surrounding the program, a number of restrictions remain present which should continue to preclude China’s A-shares from the FTSE Global Equity Index Series (GEIS),” said the index provider in a note out Wednesday.

FTSE, the index provider for over 100 U.S.-listed exchange traded funds, notes quotas placed on foreign investors’ access to A-shares stocks is one reason to not expect a near-term emerging markets promotion for A-shares stocks. The index provider also pointed out that while the debut of stock connect went smoothly, once foreign investors hit their allotted quote of $2.1 billion, they lost access to more shares just before 2pm local time.

U.S. investors’ thirst for A-shares ETFs has been so strong that on two separate occasions over the past 70 days, Deutsche Asset & Wealth Management has been forced to announce limited creations for the Deutsche X-trackers Harvest CSI 300 China A-Shares Fund (NYSEArca: ASHR) and the Deutsche X-trackers Harvest CSI 500 China A-Shares Small Cap Fund (NYSEArca: ASHS) because that heavy demand forcing the two ETFs to bump up against their respective Renminbi Qualified Foreign Institutional Investor (RQFII), which allows the funds to purchase A-shares equities. [Rushing to A-Shares ETFs]