However, daily trading inflows into both Shenzhen and Shanghai SHCOMP, -0.20%, China’s other main market, will remain capped at 13 billion yuan ($1.96 billion) a day, and many Shenzhen-listed companies still won’t be easily accessible.
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The Shanghai Composite Index shed 0.02 percent to close at 3,109.55 points.
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).
China on Tuesday took further steps toward liberalizing its financial markets by greenlighting the highly anticipated Shenzhen-Hong Kong Connect link. But authorities didn’t reveal more details.
Stock investors in China and around the world will have easier access to hundreds of companies via the Shenzhen-Hong Kong link.
Research by Guotai Junan Securities, for example, estimates the new link could channel up to 150 billion yuan from Hong Kong to the Shenzhen Stock Exchange in the first six months after its launch, based on the firm’s analysis of trading activity through the similar Shanghai Hong Kong stock connect.
But it’s unlikely a bull run will be repeated as Gao Ting, head of China Strategy at UBS Securities, said the current market conditions are completely different from those during the launch of the Shanghai connect when interest rate cuts by the central bank and funds helped to catalyze the market.
Shenzhen is the world’s second busiest and tech-heavy exchange with turnover of more than 1-trillion dollars.
Companies with a dual-listing in Hong Kong and Shenzhen, such as China Vanke Co., the nation’s biggest developer, and telecommunications equipment maker ZTE Corp.
Mainland stock prices soared beginning in late 2014 and then collapsed in mid-2015, triggering a panicked, multi-billion-dollar government share-buying effort to stabilise prices. But analysts said the influx of foreign money into Chinese stocks is likely to be modest.
On the launch date, the universe of securities for the “Shenzhen A Shares” segment of the CES 300 will be changed to include all eligible stocks for the Northbound Trading under Shenzhen-Hong Kong Stock Connect (an overview of the index’s universe after the change is shown in the Appendix). Almost 50 stocks surged by the daily trading limit of 10 percent.
MSCI has cited “accessibility” issues tied to the mainland A-shares market for shutting it out from its key EM indexes. New York-based MSCI is slated to review the Chinese market’s eligibility next year, though it hasn’t ruled out an earlier inclusion.
China has vigorously promoted global use of the RMB as the world’s largest trading nation looks to lower transaction costs in worldwide trade, which now is mostly settled in USA dollar.
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Tam expects more opportunities brought by the liberalization of the yuan’s capital account in the future. These sectors are expected to grow faster than traditional industries as China pushes structural reforms to its economy.
