China’s government has approved Shenzhen-Hong Kong Stock Connect (SZ-HK Connect), another trading initiative providing foreign investors with access to mainland Chinese companies’ equity.
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China’s top securities regulator said in a statement on Tuesday evening that the overall trading quota of 550 billion yuan ($83 billion) will be removed under both the Shanghai and Shenzhen stock trading links with Hong Kong. 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.
The statement marked the first time a senior Chinese official had confirmed the country’s second cross-border stock trading scheme, after a Shanghai-Hong Kong Stock Connect was launched almost two years ago. South Korea’s Kospi eked out a 0.1 percent loss and Hong Kong’s Hang Seng index was down 0.1 percent. HKMA indicated it wouldn’t be shy about intervening if market volatility hits again.
“Moreover, the scheme will not introduce a lot of funds to mainland markets judging from the Shanghai-Hong Kong stock link”, said Xiao Shijun, analyst at Guodu Securities in Beijing.
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.
Until the launch of the Shanghai-Hong Kong link, only a few foreign institutions were allowed to buy mainland-traded shares in a closely regulated system.
Mainland investors appeared unenthused, preferring to use other ways to invest overseas. The news comes about two months after MSCI Inc cited accessibility issues in deciding not to include mainland-listed shares in its global benchmark indexes, a blow to government efforts to raise the profile of the country’s markets and increase the worldwide importance of the yuan.
The report, titled “Hong Kong’s life business facing headwinds on new growth”, claims that while the majority of the developed life insurance markets in Asia have been facing bottlenecks in growth, Hong Kong has reported double-figure growth each year since 2010.
“Crises happen all the time”, he said.
Foreigners have used about half their 300 billion yuan (USD45 billion) quota for buying Shanghai shares since the program began.
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.
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Under the new link, Hong Kong investors will be able to trade 880 stocks on the Shenzhen market, although 200 of those shares on the Nasdaq-style tech-heavy Chinext board will only be open to institutional professional investors at first.
