London financial community urge continued talks on Shanghai Connect

London's financial community wants the proposed Shanghai London Stock Connect scheme to go ahead, insisting the UK's exit from the European Union will not make the London Stock Exchange's listings less attractive to Chinese investors.

They reasoned that London's tougher listing rules compared to EU rules would make the exchange more attractive to high quality new listings, and London is unlikely to lose its strength as a financial center post Brexit.

The Connect, already the subject of a feasibility study by the LSE, faced delay, according to the South China Morning Post on June 27 because the Chinese regulator, the China Securities Regulatory Commission, is having doubts over Brexit.

The SCMP quoted an anonymous fund manager as saying the Chinese regulators' plans to soon go ahead with the Connect has been affected, and it would take some time before regulators could consider launching the scheme.

In addition, the SCMP quoted Que Bo, a deputy general manager of the Shanghai Stock Exchange, as saying on June 12 that Brexit would be a "complicated issue" and the local bourse would enlist the help of other parties to further study and assess the situation.

The LSE confirmed the feasibility study is continuing.

Charles Bond, a partner at the law firm Gowling WLG, said he expects most major multinational firms to continue to be dual listed in London and New York.

"Importantly, European stocks will still be listed here in London, thereby ensuring that London remains a relevant and viable investment platform," Bond said.

Andrew Monk, CEO of VSA Capital, a London based boutique investment bank, added Brexit could even increase European companies' desire to list in London, which has tougher listing rules than EU requirements.

Monk explained previously the London Stock Exchange was made to split its main board into premium listings and standard listings, to reflect different requirements of its own tougher criteria and those listings that satisfy only EU regulations.

The Connect, initially discussed between the UK and Chinese governments in 2015, fits in with China's gradual attempt at capital account opening up, and follows the footsteps of similar stock market connects between Shanghai with Hong Kong and Shenzhen.

Those eager to see the Connect established cite numerous benefits for investors of both markets.

Alei Duan, managing director of the London advisor Abridge Capital International, said he expects British investors to benefit from access to China's highly liquid stock market, while Chinese investors can have more investment choices through access to London's leading international stock market.

But analysts also recognize some possible impacts Brexit may have on the Connect's attractiveness. One key concern is the UK may lose its passporting rights to access EU financial markets, which would prompt fund managers to move out of London, affecting London's attractiveness for IPOs, said Miranda Carr, senior analyst at Haitong Securities in London.

Chang Liu, China Economist from the Capital Economics, a consultancy, said one possible Brexit impact could be for the UK to lose its ability to clear euro transactions.

"This, along with regulatory uncertainty for UK's financial services sector in general could lead to a gradual shift of financial activity away from the City and to continental Europe."

Andre Loesekrug-Pietri, founder and managing partner of ACapital, a private equity firm in Brussels, added London's potential loss could create opportunities for the EU.

"This is probably an opportunity for a mainland European stock market to establish the same type of Connect, unless the merger between LSE and Deutsche Boerse allows the combined stock markets to benefit from the best of both worlds," Loesekrug-Pietri said.

To contact the reporter: cecily.liu@mail.chinadailyuk.com