“It probably took years to agree upon the framework and the infrastructure for this,” Mike Werner, an analyst at UBS Global Research, said of the stock link. “So to go through that process with ultimately the end result being only six listed companies – I don’t know if that’s a return on investment that they would have travelled down, had they known about ultimately the potential lack of demand.”
Now, tensions between the UK and China are simmering over issues such as China’s support for Russia in its war in Ukraine, a new national security law in former British colony Hong Kong and Beijing’s alleged interference in the UK parliament and suspected hacking.
And the CSI 300 has fallen almost 40 per cent from its recent high in 2021, hurt by concern that a real estate crisis could further deepen the slowdown in the world’s second-biggest economy.
“It’s kind of a bummer,” said Xiadong Bao, a fund manager at Edmond de Rothschild Asset Management. “For the funds based in Europe, if it’s on the same price level, acceptable liquidity conditions, people would really prefer the European trading hours than the Hong Kong ones.”
The LSE, as well as the Shanghai and Shenzhen stock exchanges, did not respond to requests for comment sent by Bloomberg.
China expanded the link in 2022, with Shenzhen, Switzerland and Germany joining the programme. That has not helped London – Zurich was one of Europe’s top listing venues in 2022 thanks to offerings by Chinese companies. The programme allows companies already traded in China to pursue a secondary listing of global depositary receipts in one of the participating European markets, and vice versa.
Graeme Bencke, a fund manager at Amati Global Investors, is among those based in Europe who are hesitant to have exposure to Chinese companies, even if the receipts are listed in London.
“You’re still open to very big swings in policy by the government, which are very difficult to predict,” Bencke said. “I think people have seen what’s happened with the Chinese stock market overall and understand that despite the fact that the company may have sufficiently high accounting standards to list on these programmes in European exchanges, it doesn’t mean that ultimately the control issues have gone away.”
Chinese regulators last year held up approvals of depositary receipts on concerns that a substantial portion of the issues were being taken up by Chinese investors who later converted the securities into stock in their home market to profit from persistent price gaps, given that the receipts tend to trade at a discount to the underlying A shares.
Still, there are several Chinese companies that would be interested in listing in London if the regulatory regime in China and the UK is more relaxed, said John Xu, a partner at law firm Linklaters, given that it helps to build a company’s international image.
Ming Yang Smart Energy added a London listing in July 2022. The Chinese maker of wind turbines won a contract for an offshore project in the UK in September 2022 and also secured an order in Serbia late last year.
The China-founded clothing company filed confidentially last year for a US offering, but since then has begun considering a switch to the UK. However, the plans could face similar regulatory hurdles and political opposition in the UK to that seen in the US.
A fresh round of Chinese listings would be good news for the LSE amid an IPO market that has been hindered by the prospect of companies achieving higher valuations elsewhere.
“London is a great place for a business to increase their brand awareness,” said Peter Lu, a partner and global head of China practice at law firm McDermott Will & Emery. “It’s a stepping stone for a company in China who wants to internationalise themselves.”