China launched a landmark “stock connect” between the bourses of Shanghai and Hong Kong in late 2014, opening up its closeted share market to the outside world and giving foreign investors access to Chinese companies not quoted elsewhere.
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China’s approval of the link between Shenzhen and Hong Kong follows the success of the Shanghai-Hong Kong Stock Connect.
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 contribution from Chinese investors will increase in the Hong Kong market”, said Chen Li, China strategist at Credit Suisse.
“In the short term, we think the positive impact is probably higher for Hong Kong stocks as they are cheaper, but in the long term, we think it’s good news for us”, said Yang Nong, secretary of the board of Rastar Group, a toy vehicle maker that is listed in Shenzhen. HKMA indicated it wouldn’t be shy about intervening if market volatility hits again.
Indeed, China’s notoriously speculative markets were little fazed by the news, with Shenzhen ending only modestly higher and Hong Kong stocks slipping.
China’s State Council has approved the launch of the long-awaited “Stock Connect” trading link between Shenzhen and Hong Kong stock markets, almost two years after a similar link with Shanghai.
Investors had expected the gateway to Shenzhen to open previous year, but officials held off as they grappled with the fallout from the summer’s $5 trillion equity rout and January’s botched introduction of circuit breakers.
The CSI300 index, which tracks the largest listed companies trading in Shanghai and Shenzhen, fell 0.2 percent to 3,373.05, while the benchmark Shanghai Composite Index was flat at 3,110.23. At the start, there will be 880 listed Shenzhen stocks eligible under the scheme.
Li said the move will increase China’s worldwide economic links while shoring up Hong Kong’s position as a financial center.
Final tests in preparation for the launch are expected to take around three more months, the Financial Times said, which would allow the link to open as soon as November. “Now it’s actually happened, so that’s among many things that incrementally will make the A-share market more and more accessible to worldwide investors”. These sectors are expected to grow faster than traditional industries as China pushes structural reforms to its economy.
A man walks past a panel showing stock indices in Hong Kong.
“We aim to build Hong Kong into a mature, comprehensive financial centre that can serve as an offshore wealth management centre for Mainland investors, an offshore pricing centre for the Renminbi and global asset classes for the Mainland, and an offshore comprehensive risk management centre for Mainland investors”. Southbound inflows through the Shanghai Hong Kong Stock Connect have amounted to nearly 100 billion yuan this year and the dual listed Hong Kong large-cap stocks are only 25% cheaper than their Shanghai-listed shares, down from 45% discount at the beginning of the year.
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Hong Kong-listed builder China State Construction International Holdings Ltd. saw its business in Macau surge for the first half of the year despite the economic downturn. Stocks have been setting records recently, but it’s been more than a week since they rose for two consecutive days.
