Chinese Premier Li Keqiang said in a statement on Tuesday that the State Council has approved the Shenzhen-Hong Kong Stock Connect and “everything is basically ready” for the launch.
Advertisement
“HSBC has been a champion of China’s initiatives to increase worldwide access to its domestic markets to global investors through schemes such as the Renminbi Qualified Foreign Institutional Investor (RQFII) framework and Shanghai-Hong Kong Stock Connect”.
Analysts from Guosen Securities Co agreed that the Shenzhen-Hong Kong Stock Connect program will have a profound effect on China’s capital market.
Investors have been nervous about investing in Chinese stocks after the market crashed last summer and the government intervened by spending billions to prop it up.
“The amount of foreign participation in the Chinese markets has always been low – at less than 2 per cent in Shanghai even at its peak previous year”.
CURRENCIES: Bond prices dipped and the yield on the 10-year Treasury note rose to 1.58 percent from 1.56 percent.
The Shenzhen stock market has exploded into the second busiest in the world, and technology stocks account for almost a quarter of its listings as Beijing encourages new economic growth drivers. From late this year, investors in the neighbouring cities will soon be able to buy up to a total of $3.5 billion a day of shares on each other’s bourses. “I don’t expect a similar rush into Shenzhen Connect”.
The long-delayed second link, which had been expected for more than a year, is part of China’s efforts to internationalise its capital markets and increase its global influence to something more in line with the heft of the nation’s economy.
A stockbroker in Hong Kong. But it did not say when. The Shenzhen trading link is the second with the mainland.
The Shanghai Composite Index rose almost 30 per cent between mid-November 2014 when the stock connect was launched and the end of 2014, part of the blistering bull run before the mid-2015 crash. Daily quota limits, however, remain in place. The connect will also include small-cap companies listed in Hong Kong that have a market value of more than HK$5 billion ($US645 million).
This can mean great investment opportunities – or a cause for concern – depending on where you are and how much risk you can take. More importantly, the Chinese securities regulator keeps tight control on which companies can go public, thereby resulting in a mismatch between supply and demand in the equity market that leads to corporate overvaluations.
The Premier noted that the launch of the program would help investors better share the fruits of economic development in both the mainland and Hong Kong, deepen the financial cooperation between them, and consolidate and enhance Hong Kong’s position as an worldwide financial center.
Arbitrage investors can make money by exploiting the divergence in valuations.
Advertisement
Still, KGI Fraser Securities trading strategist Nicholas Teo is keeping an eye on the Shenzhen market.
