Foreign institutions applaud China's further capital market opening-up

Further reform and opening-up can be expected in the Chinese capital market as Yi Huiman, chairman of the China Securities Regulatory Commission, stressed that opening-up and cooperation are the inevitable trend in the integrated development of global markets.

Yi, head of China's top securities regulator, made the comments during the 60th annual meeting of the World Federation of Exchanges on Monday. He also said the commission is working on measures to expand the scope of the stock connect program linking the Chinese mainland and Hong Kong.

The Shanghai-London stock connect program will be improved, while more commodity and financial futures will be made available to foreign investors. The recognition of international practitioners' qualifications will be advanced, according to Yi.

"We will provide more equitable, efficient and convenient services for overseas institutions and investors to participate in China's capital market," he said.

Meng Lei, an A-share strategist at UBS Securities, said the recent policy signals of capital market opening-up, including the A-share futures product to be launched in Hong Kong, have reassured global investors after market fluctuations.

This is expected to help A-shares attract net foreign inflow of more than 100 billion yuan ($15.49 billion) over the next four to five months, with the manufacturing industry backed by policy supports and consumption stocks whose valuations have become more reasonable, likely among the most attractive sectors to global investors, Meng said.

While worries were expressed in late July, saying foreign investors may withdraw part of their capital from the A-share market, the market's performance in the following month has just defeated all the predictions. At least 20 billion yuan worth of foreign capital flowed into the A-share market in August, as discovered by UBS.

According to Yi, the commission also is striving for greater progress in international regulatory cooperation regarding the supervision of overseas-listed Chinese companies, cross-border audit oversight and the enforcement of laws and regulations.

Global financial hubs "should not become platforms and tools for governments to suppress and sanction other countries", Yi said, adding that any "zero-sum game" mindset should be forgone, as global financial communities have become intertwined with common interests.

Meanwhile, the commission will take the launch of the Beijing stock exchange as a chance to build a comprehensive set of arrangements to support small and medium-sized enterprises, Yi said.

He added that the commission will remain vigilant against any risks of asset bubbles created by the circulation of liquidity within the financial system diverting funds from the real economy.

Sean Taylor, Asia-Pacific chief investment officer with German asset management company DWS, said he expects China to continue its steps in capital market reform and opening-up, as demonstrated by Yi's remarks.

"I think the Chinese government will make the A-share market more attractive and better regulated. That would be more interesting for foreign investors," Taylor said.

China's financial assets offer valuable diversification benefits for global investors, Taylor said. Looking at the next year, for instance, global economic growth may slightly slow down as developed market economies scale down stimulus measures, but China is expected to maintain stable macro policy and provide global investors with attractive growth opportunities.

On the fixed-income front, the improved market connectivity via the bond connect program will likely draw in more capital into Chinese onshore bonds, he added.

Toshiyasu Iiyama, executive managing director of Nomura Holdings Inc, said that Nomura has been building capabilities in China to take advantage of financial sector reforms and opening-up of the country's financial markets. Strategically, the build-out fits with the company's long-term objective to diversify their portfolio to increase resilience in the face of uncertainty, and the long-term goal to connect the eastern and western markets, he said.