Foreigners Will Be Able To Buy Chinese Stocks

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Next Monday, for the first time ever, foreign investors will be able to buy shares of Chinese companies listed on the Shanghai Stock Exchange.

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This new development is a game-changing program and many investors are excited about it. The new China mega-equity market will be the second-largest stock market by market cap, with the NYSE remaining first.

The changes will play a big role in China’s broader and structural economic reforms. Investors have already poured money into some of the stocks listed in the Shanghai Exchange in anticipation of foreign buying starting next week.

Shanghai Index 2014

Shanghai Index 2014, Source: StockCharts.com

In the chart above, we can see that the Shanghai index is up 22% since April, when the foreign purchase Stock Program was first announced. This is the first time in 5 years that mainland Chinese stocks are doing better than stocks in the rest of the world. This might be one of the reasons why industrial metals are holding better than other commodities in this second half of the year, considering the historical correlation between industrial metals and Chinese stocks, which reflects people’s expectations of China’s economy.

What This Means For Metal Buyer

Shanghai stocks have already risen since the game-changing program was announced. We’ll see if these developments help push China’s economy, or at least people’s enthusiasm about it, which might help support base metal prices.

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