Li said the new link would be launched by Christmas if not sooner, and the Hong Kong bourse expected Shenzhen trading to be subject to the same tax treatment in China as under the Shanghai connect scheme.
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“The Shenzhen-Hong Kong Stock Connect should move China further along the road to MSCI inclusion and we see this announcement as a significant catalyst for Chinese markets, particularly at a time where fundamental strength and industrial profitability are building”, said Douglas Morton, head of research at Northern Trust Capital Markets Asia.
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).
The overall quota limits for the link between Hong Kong and Shanghai’s stock exchange, which was launched in late 2014, was also lifted. The Shenzhen Stock Exchange includes the shares of smaller technology and consumer-oriented companies, which are not popular with global investors.
The absence of an aggregate limit on investments will be “an improvement”, said Michael Wu, a Hong Kong-based analyst at Morningstar Inc.
The launch of Shenzhen-Hong Kong Stock Connect is subject to the finalization of all necessary regulatory approvals, market readiness and relevant operational arrangements, according to SFC and CSRC.
“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.
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 global index compiler cited three key concerns by worldwide investors, including a 20 per cent fund repatriation limit for foreign institutional investors, the need to get pre-approval from Shanghai and Shenzhen stock exchanges to launch any financial products overseas, as well as the need to evaluate the effectiveness of policy changes in addressing “widespread trading suspensions” in A shares markets. Daily caps on net purchases will still be imposed on both trading programmes.
The ChiNext growth board index in Shenzhen opened flat, and was down around 0.1 percent in early trade. But the Shanghai-Hong Kong link has proven hugely popular with foreign investors, who bought the maximum number of shares allowed in its first few days.
Under the Scheme, there will be 880 Shenzhen-listed stocks eligible for foreign investment. Barriers to foreigners wanting to trade the $US6.5 trillion of mainland equities were one of the reasons that MSCI decided not to include the shares in its global benchmark indices in June.
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Over the longer run, Xiao expected a correction of the valuation gap between Hong Kong and mainland markets. It is also set to offer more complementary industry-level exposure than that of the Hong Kong market.
