SHANGHAI-China’s State Council on Tuesday approved the launch of the long-anticipated Shenzhen-Hong Kong Stock Connect, almost two years after the country opened a similar link between Shanghai and Hong Kong’s stock markets. It allows investors on the mainland and those in Hong Kong to trade selected stocks on each other’s exchanges.
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The approval of the Shenzhen Stock Connect scheme may boost market sentiment, Julian Evans-Pritchard, China economist at Capital Economics said.
“The State Council has approved the implementation proposal for the Shenzhen-Hong Kong Connect”, mainland executive chief Li Keqiang was quoted as telling a meeting of the body.
A decision to impose fewer restrictions on the Shenzhen link would signal that China’s officials, who’ve pledged to open their markets to foreign investors, are comfortable that the program won’t become a channel for funneling capital out of the mainland.
In May, Shenzhen’s Small and Medium Enterprise Board overtook Shanghai for the first time in at least a decade at the top of turnover rankings for the nation’s four major trading venues.
Combined, the two mainland stock exchanges have a market capitalization of $7.4 trillion, second in the world after the NYSE Euronext. (HKEx) is expected to announce more details regarding the new stock connect this evening, according to a source from the exchange. The Chinese premier said the move will help to reinforce Hong Kong’s status as a financial center. He said that now that Hong Kong’s exchange has set up infrastructure for accessing secondary markets, it could expand into commodities, bonds or currencies. A similar program connecting Shanghai and Hong Kong markets kicked off in 2014.
“In the short term, I very much doubt this will drive significant flows into Shenzhen shares as a lot of stocks are expensive”, Caroline Yu Maurer, head of Greater China equities at BNP Paribas Investment Partners said.
The new Shenzhen Connect agreement means that for the first time global investors will be able to trade stocks listed in the southern Chinese city, which is home to many more technology and start-ups than Shanghai.
The CSI300 index, which tracks largest listed companies trading in Shanghai and Shenzhen, fell 0.2 percent, to 3,373.16 points at the end of the morning session, while the Shanghai Composite Index lost 0.2 percent, to 3,104.09 points.
As the dollar weakened, the price of oil rose for the fourth day in a row to sustain a recent recovery and metals prices also rose.
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. Another broader trading quota will be dropped for both trading links.
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Traders rarely used up their daily quota via the existing link.
