The Securities and Futures Commission (SFC) and the China Securities Regulatory Commission (CSRC) on Tuesday announced the approval, in principle, of the structure of Shenzhen-Hong Kong Stock Connect, which will provide mutual stock market access between Hong Kong and Shenzhen via a northbound trading link and a southbound trading link. For both trading links, investors will have access to companies listed on the Hong Kong or Shenzhen Stock Exchange which have issued A shares and H shares.
Advertisement
“The much-anticipated Shenzhen-Hong Kong Stock Connect will be a new milestone in Beijing’s liberalising of capital controls in both directions”, states HSBC Global Research’s head of HK/China equity research, Steven Sun, in a Wednesday report.
The market was also bolstered by investors seeking to front-run expected fresh inflows from the upcoming Shenzhen-Hong Kong Stock Connect. Any company that’s dual listed in the city as well as Hong Kong will also be available, while buying shares traded on Shenzhen’s ChiNext small-cap gauge will be limited to institutional investors at the “initial stage” of the link, the SFC said. HKMA indicated it wouldn’t be shy about intervening if market volatility hits again. The move helped boost sentiment in Hong Kong on Wednesday, but analysts said the influx of foreign money into Chinese stocks is likely to be modest. Additionally, the Hang Seng China AH Premium Index has dropped by 20 percentage points to 125, from its peak of 145 at the beginning of the year. The Shanghai Composite Index shed 0.2 percent to 3,102.93 and New Zealand and Malaysia also advanced.
Investors on the two sides will then be able to trade selected stocks on each other’s exchanges.
Though the actual launch is unlikely to trigger an avalanche of funds into China’s stock markets – given relatively expensive valuations and a slowing economy – mainland Chinese investors will likely cheer another option to diversify away from weak onshore stock markets. The measure was less popular on the mainland, where investors have other vehicles for sending money overseas to invest. Its average daily turnover ranks behind only the New York Stock Exchange, according to data from the World Federation of Exchanges.
Premier Li said the Shenzhen link would represent a “firm step ahead” as he pledged closer cooperation between mainland China and Hong Kong.
There already is a stock link between Hong Kong and them mainland market in Shanghai.
“Crises happen all the time”, he said.
Investors have been nervous about investing in Chinese stocks after the market crashed last summer and the government intervened by spending billions to prop it up. I don’t really see why that’s going to be a determining factor at this point, but again, we’re talking about the future.
Shenzhen had 1,790 listed stocks as of end-July, several hundred more than Shanghai.
Traders rarely used up their daily quota via the existing link. “Some shares related to Shenzhen-Hong Kong Stock Connect will probably open higher tomorrow morning”, he said.
Advertisement
“Removal of the aggregate quota will not have a big impact on trading volume, which depends more on market conditions at the moment”, said Linus Yip, a Hong Kong-based strategist with First Shanghai Securities. The feature with roll-out in 2017, the exchange said, but a launch date will only be set following the launch of the Shenzhen link.
