The news that the State Council, China’s cabinet, had approved the launch of the Shenzhen-Hong Kong Stock Connect program linking the two exchanges was a positive for mainland stocks, analysts from Jufeng Investment Information Co said.
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Hong Kong opened a similar stock-trading link to Shanghai’s exchange almost two years ago, the Shanghai-Hong Kong Stock Connect.
Charles Li, chief executive of Hong Kong Exchanges and Clearing Ltd, said at a news conference that the move underscores regulators’ confidence over the trading links, and the scrapping of the investment quota will help enlarge transaction volume. HKMA indicated it wouldn’t be shy about intervening if market volatility hits again.
In Hong Kong, the market threw caution about the Shenzhen-Hong Kong Stock Connect program to the wind and stocks caught an updraft.
The long-delayed second link, which had been expected for more than a year, is part of China’s efforts to internationalize its capital markets and increase its global influence to something more in line with the heft of the nation’s economy.
Li said carrying out reforms and opening up the mainland capital markets to the outside world forms the major part of the country’s economic blueprint in future.
The scheme will allow investors in Shenzhen and Hong Kong to buy or sell stocks in each market through brokers.
The premier said the move will increase China’s worldwide economic links while shoring up Hong Kong’s position as a financial center.
The daily quota under the mechanism will be the same as that under the Shanghai-HK mechanism, or 13 billion yuan (1.96 billion USA dollars) for northbound investment and 10.5 billion yuan for trading Hong Kong-listed shares. The measure was less popular on the mainland, where investors have other vehicles for sending money overseas to invest. The IT sector jumped over 2 percent, while energy shares were also strong on higher oil prices. “We expected the Shenzhen-Hong Kong connect for a longtime”. Markets “have been selling off, they have been going up”.
Li dismissed fears that Hong Kong’s trading systems would be unable to handle the volatility if there’s a repeat of the market meltdown across the border, saying it’s no reason to delay the launch. “Anything could happen in the future”. Officials are also considering removing the overall limit for equity trades through Hong Kong’s existing link with Shanghai, one of the people said.
“The Shenzhen market has significantly more small-cap stocks than Shanghai, with an average market cap of about half of that of Shanghai listed shares”, the firm said in a statement.
Institutional investors will be able to trade all dual-listed shares and most of the Shenzhen Component Index’s 500 members, as well as small- and mid-cap shares with a market value of more than 6 billion yuan ($904 million). There is still a daily quota of 13 billion yuan northbound and 10.5 billion yuan southbound, however.
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In Hong Kong, the Hang Seng index added 0.2 percent, to 22,963.51 points.
