HONG KONG STOCK LINK: China’s Cabinet announced approval of an initiative that would give foreign investors more access to Chinese stocks by linking exchanges in Hong Kong and the mainland city of Shenzhen. The trading link could open up the key Shenzhen market to all foreign investors – similar to a Shanghai-Hong Kong stock-trading link in late 2014. The Connect link would allow worldwide investors to buy A-shares directly via the Hong Kong Stock Exchange.
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There will be no aggregate quota under Shenzhen-Hong Kong Stock Connect, according to the regulators. HKMA indicated it wouldn’t be shy about intervening if market volatility hits again.
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.
As of Tuesday, southbound quota usage was more than 80 percent, while take-up from Hong Kong of the northbound quota was around 50 percent.
While daily trading quotas for participants buying Shanghai and Shenzhen shares in the scheme are capped at 13 billion yuan ($1.96 billion) for each market, Hong Kong and China have agreed to scrap an aggregate quota, meaning investors could have unlimited access to Chinese shares over time.
Hong Kong’s Hang Seng Index HSI, +1.20% was up 1.5%, Seoul’s Kospi SEU, +0.50% added 0.3%, while the Shanghai Composite Index SHCOMP, -0.03% gained 0.2%.
The initial feedback on the Scheme has been positive and it is believed that the Scheme symbolises the further opening of the Mainland capital market and perhaps a closer step towards the admission of China A shares to the emerging market indices of MSCI.
Although the immediate influence on the A share market will be limited due to China’s capital account control, the stock trading link marks major progress in the internationalization of China’s financial market in the long run, analysts said.
“The preparation for the launch of Shenzhen-Hong Kong Stock Connect has been basically completed, and the State Council has approved its implementation plan”, he said.
So what does the new connection mean for investors on opposite sides of the border?
Those looking to profit from arbitrage trading may turn to stocks listed in both Hong Kong and Shenzhen.
The new connect is modeled after the Shanghai-Hong Kong connect by which mainland investors could buy Hong Kong stocks, and vice versa.
As the Hong Kong market is heavy in small- and midcap issues in the real estate and financial sectors, the new link will offer overseas investors opportunities to diversify, according to British bank HSBC.
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.
For China, this is more about further opening up its financial markets and integrating it with Hong Kong as well as the worldwide community.
Exports of goods made in Singapore fell 10.6% from a year earlier, compared with a revised 2.4% decline in June, trade-promotion agency International Enterprise Singapore said Wednesday.
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How about the mainland China’s stock markets?
