Shanghai exchange raises foreign investment cap

Overseas investors can now collectively own up to 30 percent of a single firm

The Shanghai Stock Exchange (SSE) has eased restrictions on overseas investors, allowing them to collectively hold up to 30 percent of a single company, up from 20 percent previously.

The move, announced in a statement on the exchange’s website, is the latest step toward liberalizing the financial system in the world’s second-largest economy. The 10 percent cap on company ownership by an individual foreign investor remains the same, however.

Foreign investors looking to buy stocks in the tightly regulated Chinese stock markets currently buy stocks and bonds through the two main channels for foreign investment: the Qualified Foreign Institutional Investors (QFII) and Renminbi Qualified Foreign Institutional Investors (RQFII) programs. The investment cap on these schemes was raised with immediate effect on Thursday, 20 March.

The Shanghai bourse adds that if the collective shareholding of overseas investors in any one company rises above 26 percent, it will notify the market the following day. It also says foreign investors will now be able to trade asset-backed securities for the first time, and participate in the preferred share program, expected to launch soon.

Earlier this month, China’s central bank revealed its timeline for liberalizing the country’s deposit rates, and this latest move came just days after the People’s Bank of China doubled the daily trading band of its currency.

‘The move comes at a time when China’s stock market is quite weak and regulators hope to attract more foreign investment,’ Zheng Weigang, a senior trader at Shanghai Securities, tells Reuters. ‘Given China’s large capitalized stock market, however, the overall amount of QFII and RQFII investment accounts for only a limited portion, so the impact of the new rules may be limited.

‘Besides, because of lackluster growth in China’s economy in recent quarters, foreigners’ interest in China’s stock market is not that strong, which will also limit the impact of the new rules.’

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