China Stock Connect 101 – Quick Guide

China Stock Connect 101

Up until 2014, the Chinese stock market was not available to international investors - making one of largest economies in the world inaccessible to the global investment community. The Hong Kong Stock Exchange (HKEX), on the other hand, has always opened its doors to international investors.

So in 2014, the China Stock Connect was established allowing international traders to access shanghai shares for the first time via the Hong Kong stock exchange. In 2016 this was broadened to include the Shenzhen Stock Exchange as well.

China Stock Connect is a trading mechanism introduced by the Chinese financial regulators which connects China-A shares to the shanghai and Shenzhen markets with HKEX. It has two parts: SH-HK Connect and SZ-HK Connect. Each stock exchange provides a list of qualified shares to its counterpart according to their predetermined criteria and the list is updating on a monthly basis. Only companies that are on the lists can be traded. Investors can trade these shares through their local brokers. However, if the company is not on the list, it is not tradable.

How to Trade China Stocks?

For example, an Australian investor who wants to buy China-A shares are able to ask their Australian broker that if the stocks they want are tradeable.

If the stocks were on the list and tradeable, the Australian broker will place the trade for the investor. The order follows to a subsidiary in mainland China who feeds the order to SHSE or SZSE.

This process is called northbound order follow. Vice-visa, mainland Chinese investors can place trades with their local broker and buy Hong Kong stocks.

The process to buy Hong Kong stocks from mainland China is called southbound order follow. 

Source: HKEX Information Book for Investors 

PhillipCapital Australia offers China A online through the CQ platform and China B through phone trading.  Phillip Group is well-established in Asia and has access to many other Asian markets along with the US, UK and Europe. Get more information on the brokerage fees to buy China shares.  

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